The right fit
When it comes to mergers and acquisitions we understand the process, and at the end of the day we know that having the right fit is the most important factor. Working towards the common goal of integrating business operations is critical with mergers and acquisitions.
We can talk about all the details such as: financial viability, company valuations and multiples, management retention, strategy, employee turnover and the list goes on. But if you don't have both parties involved working on a common goal and focus on company integration of operations, culture, and overall mission the deal won't work. This is why the current research shows that 50% of all mergers and acquisitions fail.
The common "deal breakers" are high company valuations, a lack of understanding of the business and integration model or value drivers, and differences of corporate culture.
Another issue is not correctly assessing the tax implications of the transaction.
When a company is acquired by another company, a deemed year end is triggered for the acquired company as of the date of the acquisition. This may result in a short taxation year end in which a tax return will need to be prepared. Furthermore, there are certain losses that cannot be carried forward to the successor company that acquired the predecessor company. Capital losses expire immediately after the date of acquisition. However, there are certain elections in place where the acquired company can “trigger” accrued gains on certain assets to offset the capital losses against. Business losses or Non-capital losses can be carried forward; however, it is somewhat restricted. The non-capital losses can be carried forward if the successor company continues a similar business of the acquired company. This rule prevents companies that are “shopping” for companies that have large losses that could be used to offset its income for tax purposes.
Business acquisition can result in some complex issues from accounting, tax and legal side. For more information on how MP Group can assist with mergers and acquisitions please contact a MP Group expert.