United States

The importance of pre-transaction sell-side SALT due diligence

Sell-side due diligence is often overlooked but can be advantageous

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There has been considerable merger and acquisition activity in the past few years, especially in the middle market. Coupled with the significant multiples being paid for businesses, this activity has owners eyeing the market and wondering if it’s time to sell their businesses before the next economic downturn reduces the value. Whether the owners are individuals holding businesses that have been in their families for years or private equity firms, the goal is to maximize the value of the entity being sold.

Although the objective may seem simple, achieving it requires substantial time and effort. While the main focus in a transaction is generally on a selling company’s financial statements, there are many components that affect those financial statements. State and local taxes often don’t get much attention, but can nonetheless have a substantial impact on the economics of a deal.

In this article, first published in Tax Analyst's State Tax Notes, authors John Wojcik and John Wozniczka discuss how pre-transaction state and local tax due diligence can help companies and individuals selling a business:

  • Identify and remedy tax exposure before a sale
  • Maximize purchase price
  • Understand the costs and benefits of common transaction structures

Sell-side state and local tax due diligence can be highly advantageous to a selling entity. It is a proactive approach, which puts a seller in a better position to discover potential tax issues, control the way to resolve any issues and maximize the expected returns when selling a business. By properly preparing for a sale through pre-transaction sell-side tax due diligence, a seller can fix issues before they arise.

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