United States

Credits and incentives can add real value to your deal

Opportunity may exist between your offer and closing


Because private equity firms often acquire companies with established facilities and existing workforces, you may think that statutory credit and incentive programs designed to reward new investment and new jobs do not apply. In fact, incentives may be available to add real value to your deal.

If you are seeking to acquire a business with a physical location and more than 50 employees, tax credits and incentives should be part of your deal considerations. Why? Put yourself in the shoes of the community economic developers–a new owner can have a significant impact on the economic health of a community. Will a new business strategy bring new jobs? Will the existing jobs remain local? Is there a need to invest in new equipment? Are the workforce skills of the community commensurate with the new business strategy? The answers to these questions will affect the greater community, from housing needs to utility consumption and tax base to overall purchasing power.

Economic development agencies want to get to know the business owners in their communities and understand how you can work together toward a common goal. As with most components of a business transaction, timing is critical. The best time to begin these conversations is as soon as you are contemplating a new deal.

Understand your opportunity

State and local development agencies understand that ownership changes may stem from local businesses possibly lacking the capital, talent or expertise necessary to grow or even survive. In that light, your acquisition is not simply a purchase of an existing operation; it may be considered a new investment that will revitalize a local business while protecting existing jobs and creating new ones. This has the potential to create opportunities for hiring credits, training grants or utility rate incentives. There are several questions you should consider before approaching such a conversation:

  • How do you plan to work with the local community?
  • Does your business plan call for additional job growth or retention?
  • What kind of additional investments will you make–equipment, property, training?
  • Do you expect to continue operations in the same location–expand or consolidate?
  • Will existing credits or incentives of the target company transfer with new ownership?

Four steps to credit and incentive success

By understanding how to align the specifics of your transaction against these messages, your firm may be able to realize lucrative incentives. In practice, securing incentives is a four-step process:


Start by researching the target company’s costs of doing business and importance to the community in terms of employment and history, as well as the current business environment. You should have sufficient time between issuing a letter of intent and closing to conduct initial discussions with the local development agency. An experienced intermediary can help make sure the right conversations happen in a timely manner and, if necessary, facilitate difficult negotiations while retaining your future relationship with the community.

During these conversations, you will want to help the development agencies understand the various considerations related to your investment, including any potential for consolidating, growing or relocating operations, or even incorporating the target into an entirely new business. This helps the local agency understand what their community stands to gain or is at risk to lose.

Due diligence

Next, make a deeper dive into areas like necessary capital improvements, workforce upgrades, training and leadership. Local officials need to be aware of your need to invest in each of these areas and how their potential support could shape your decisions. Few communities are willing to let jobs disappear, so helping local agencies understand your needs is often a win-win situation. This is where you and local officials begin to define what each of you is willing to bring to the table to support the future success of the enterprise and its ongoing contributions to the local economy.


Development officials have differing degrees of experience and sophistication when it comes to understanding the realities of an acquisition and its alignment with potential incentives. You clearly may need to demonstrate that while you might be buying an existing company, the status quo is not guaranteed when it comes to employment or other issues. For you, it is a new business, with new employees and new goals. This discussion can help these officials from falling into the trap of thinking “these jobs are already here and can’t be considered new.” Development officials often have the ability to  provide discretionary incentives that help the company and community partner for future success, such as withholding tax waivers, lower utility rates, grants, or investment and job tax credits that offset state and local income and sales taxes. An open dialogue and free exchange of ideas can help identify incentive packages that benefit both parties.

Be sure that you truly can benefit, though. An incentive offer must be analyzed against business operations and expected tax status to determine if the full value can be realized within the required time frames. Sometimes an option that seems to offer a lesser incentive up front may have a better hard dollar value in practice. Again, this is where it can be helpful to work with an advisor who can quickly assess the intersection of business, tax and incentive planning.

Ongoing monitoring and compliance

Any agreement reached is likely to include compliance requirements. For example, incentives around job creation or retention will require periodic reports showing that the negotiated employment levels are achieved or maintained. You can work with the local agency to design a reporting regime that empowers it to demonstrate that its incentive dollars are being used wisely without imposing unduly onerous requirements on your business.

Throughout the process, work to establish a sense of partnership that emphasizes your mutual benefit in the success of the enterprise. Credits and incentives can add real value, even when you are buying a well-established target. Don’t overlook this opportunity on your next deal.


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