Structuring is becoming more important than final sale price in Merger and Acquisitions
Deal structures in Merger and Acquisitions (M&As) are becoming more important than the final sale price, say leading audit, tax and business advisory firm, Blick Rothenberg.
Devan Chhaniyara, who has joined the firm as a corporate tax director in its M&A Transaction Services practice, said: “For mid-market businesses, deal structures that deliver the right payment framework, manage tax obligations and include a strategic timeline for proceeds are becoming key to successful M&A’s – and more important than the final agreed headline price.”
He added: “This changing view of value is being driven by a growing gap between seller price expectations and buyer valuation expectations. But buyers and sellers need to carefully assess which deal structure is going to deliver the best results.”
Devan said: “In an earnout deal structure part of the purchase price is deferred and is only paid out post-closing if the acquired business achieves specific operational or financial goals. They align buyer and seller expectations but create complexity in terms of capital gains tax and income tax – particularly if payments are tied to employment.”
He added: “Earnouts can have financial implications for the seller if there is a difference in tax outcomes as it would impact the net proceeds received by the sellers, and timing mismatches between submitting tax receipts to HMRC and the tax treatment the Revenue decides on could create tax liabilities before cash is received.”
Devan said: “Deferred consideration is a non-performance-based approach that is a simpler alternative to earnouts with a fixed payment over time. It provides greater certainly for sellers and downside protection for buyers as payment is linked to specific goals or the businesses continuing to perform as expected after acquisition.”
He added: “Equity rollover structures are common in Private Equity backed transactions where sellers reinvest part of their proceeds into new equity. These structures bridge valuation gaps and align incentives for future growth. Tax exposure for the sellers is deferred, but equity introduces some level of uncertainly as future tax rates and exit conditions cannot be predicted. There are also some deal structuring complexities to negotiate to ensure capital gains tax treatment is preserved when introducing certain types of shares.”
Devan said: “These deal structures bridge valuation gaps, but result in increased deal structure complexity, but the tax implications of each must carefully be assessed by buyers and sellers before they make a deal.”
He added: “I have over sixteen years’ experience in UK and international tax, advising private equity and corporate clients through complex buy-side and sell-side transactions across various sectors and asset classes. I specialise in tax structuring, tax due diligence, and deal execution (including funds flow) on domestic and multi-national transactions.”
Devan said: “In addition to my advisory role, I have in-house experience at a Private Equity House/Family Office, where I was responsible for leading tax matters, managing M&A transactions, and resolving fund and portfolio-level issues.”