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Mergers & Acquisition

Introduction

Share incentive structures can have a significant impact on Mergers & Acquisition (M&A). This can be in connection with a due diligence, where it is important to identify potential employment tax risks which could affect the purchase price and the equity incentive arrangements for the management team of the target company going forward, can often be central to the transaction.

Deloitte can provide advice on employment and personal tax matters on all aspects of M&A transactions including:

  • the tax due diligence phase, to identify tax risks, potential costs or value add opportunities associated with share arrangements operated by the target business;
  • structuring management’s equity participation, to align their interests with investors, obtaining improved tax efficiency and reducing tax risk.

Our clients are generally private equity houses, corporate buyers and management teams. Working closely with our corporate M&A tax colleagues and Deloitte member firms worldwide, we are able to provide our clients with comprehensive and co-ordinated international transaction employment and personal tax advice.

Due diligence

Every due diligence will be different and will raise different issues from a share schemes perspective. For example, a public to private transaction will be very different to a private company takeover. However, in all deals it is important to consider and identify potential tax risks or benefits to the target entity in respect of any share arrangements.

Deloitte’s specialised team offers a comprehensive approach to the tax due diligence process, working to identify historic, transaction based and future employment tax risks and opportunities for companies relating to existing share plans.

Management equity

A management team’s equity participation following a transaction can be central to the success of a deal and is a key driver in the tax structuring process. Increasingly there is more focus from both investors and management on developing plans which incentivise and motivate management while also avoiding tax pitfalls.

The economic downturn has seen a number of historic investments falling significantly in value, resulting in the necessity to re-align historic management equity plans to ensure management remain fully incentivised.

There is also currently an increased focus from tax authorities in the UK, the US and Europe on the taxation of management equity participation in leveraged deal structures. We work to develop solutions that reflect the constraints of the relevant jurisdictions.

Our solutions include:

  • Tax advice regarding the structuring of management’s equity participation both from a UK tax perspective and on a global scale, using our international network of Deloitte member firms.
  • Reviewing the potential economic returns to management based on specific deal structures/multiples and assessing management equity economics against market trends and norms.
  • Re-aligning ’underwater’ management equity plans that were put in place on historic deals in order to reincentivise management while retaining avoiding tax pitfalls.
  • Developing robust structuring solutions in the light of increased scrutiny from tax authorities on management equity plans.
  • Using available relief, such as entrepreneurs’  relief and compensating adjustments to increase net returns to management.

 

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