I recently met with a corporate M&A veteran, someone who had done over 50 acquisitions for Hewlett Packard and Agilent. She said companies that they acquired that were not represented by an M&A firm often “left money on the table” or ended up with less than optimal terms.
I often run into business owners that approach a larger company themselves, and believe the company will treat them fairly in an acquisition. Maybe, but probably not. Many aspects of an acquisition are tax related, and its no coincidence that what is good for the buyer is bad for the seller, and vice versa. The IRS doesn’t have to worry much about audits when they know there is a natural, built in check and balance system when one party loses.
Even after the initial deal is struck, there are often many of these tax related issues, and a buyer (and definitely a buyer’s attorney), is going to naturally going to structure a deal that helps them in terms of tax impact and future cash flow – and that hurts the seller. Sometimes a buyer doesn’t even know the negative impact something has on a seller until we tell the buyer.
For example, a buyer recently structured a complicated deal recently that attempted to re-distribute the purchase price among different seller groups. They didn’t realize that it set up two layers of taxation. Taxed once when paid to one seller group, and then the same money was taxed again upon re-distribution. Whoops. Its sometimes hard enough to pay the tax bill once, but paying it twice can really hurt.