Tax departments getting heavily involved in M&A deals

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The majority of corporate tax departments are playing a major role in advising executives on mergers and acquisitions, according to a new survey.

The survey, by Bloomberg Tax, found that 80 percent of tax departments are either extremely or highly involved in M&A transactions. While 54 percent said they were highly involved and had input on the structure of the transaction, 26 percent said they were extremely involved, having helped with the entire deal and not just the tax piece. The remainder (20 percent) said that they were somewhat or slightly involved, advising on the tax implications only.

The poll asked 226 respondents at the director level and above working in tax departments for organizations with more than $500 million in annual revenue about their involvement in M&A deals. Almost two-thirds (60 percent) indicated they are becoming involved in M&A transactions before preliminary agreements are struck to help optimize tax structuring, while 36 percent reported that they became involved in the most recent M&A after the transaction was preliminarily agreed to, but before it was structured, and 4 percent became involved after the transaction was structured.

The three aspects of M&A deals that respondents considered most likely to be difficult to handle are post-transaction structuring (46 percent), international (non-U.S.-based) taxes (44 percent), and U.S.-based international taxes (42 percent).

Thirty-one percent of the survey respondents reported they need to increase the size of their staff as a result of M&A activity at their company, while 58 percent said their roles and responsibilities had changed as a direct result of it. They noticed an uptick in financial resources at the tax department in the aftermath of an acquisition or merger, with 52 percent of respondents seeing budget increases and 78 percent observing increased spending on outside consulting.

“It makes good business sense to involve tax departments early in the M&A process to fully understand and alleviate potential tax-related risks and issues, such as cross-border tax matters and the tax implications of transaction financing, which can greatly impact the attractiveness of a transaction,” said Bloomberg Tax vice president and general manager Lisa Fitzpatrick in a statement. “Corporations, and the tax and accounting firms that support them, can rely on Bloomberg Tax for practical insights and analysis on the developments and implications of the 2017 tax act on M&As.”

Purchase price allocation (75 percent), post-transaction structuring (71 percent), tax accounting (69 percent), tax basis adjustments (68 percent), and non-U.S.-based international taxes (65 percent) were considered most likely to be at least moderately difficult, according to the survey respondents. With the exception of payroll taxes, over half felt that all tax-related activities related to M&A deals were considered to be at least moderately difficult.

Most of the M&A transactions took between six and 12 months to complete, according to the respondents. Structuring a transaction usually took an average of 5.9 months, due diligence took 5.8 months, tax accounting and reporting issues required 4.9 months, tax compliance issues took 4.8 months, and integrating ERP systems required 4.5 months on average.

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