The Tax Advisory Role in Buy-side Transactions
By Michael Williams, BDO Transaction Advisory Services Tax Leader
As a strategic buyer, you can run across a multitude of complexities when evaluating a target company for acquisition, which is why the due diligence process is so important. And while tax considerations play a significant role in most transactions, tax due diligence is often overlooked in the due diligence process. That can be a costly mistake. Tax advice on a buy-side transaction serves three primary purposes:
- Reduces unexpected costs
- Enhances savings
- Improves the value of the transaction.
Below are some of the key areas for tax diligence that could impact a buy-side transaction.
Differences of Asset and Stock Acquisitions
In an asset acquisition, the tax basis a buyer obtains in the target’s assets equals the cash purchase price, plus the target liabilities assumed and certain transaction costs paid by the purchaser. Often, the purchaser obtains a step-up in the tax basis of the target assets. Accelerated tax depreciation may be claimed on fixed assets such as equipment and fixtures. The step-up may produce a tax basis in intangibles and goodwill which often is amortizable straight line over fifteen years.