ANALYSIS - M&A SERVICES Continued From Page 11
DIFFERENCE IN ASSET OR STOCK SALE of an agency is increased by approximately 20% if the buyer is able to depreciate the purchase. Furthermore, depending on your specific corporate structure, there are certain deal structures which may allow the purchaser to amortize the good will value in a stock transaction. Your tax advisor and M&A professionals can advise you on these structures if an asset deal is not a viable option. Secondly, in the purchase of a company’s stock, the buyer will be purchasing all of the assets and liabilities of the company, including, all known and unknown liabilities. This
First, the C Corporation is taxed at the corporate tax level for the sale of the assets. Then, secondly, the selling shareholder is taxed at the personal tax level for the distribution from the company to the shareholder. Therefore, the selling shareholder will be subject to double taxation, Further, the selling company will making an asset purchase very, continue to assume all liabilities very tax inefficient. that are not specifically being purchased. This means that the The below example (Figure Selling entity will continue to 1) illustrates the difference in have the most, if not all, liabilities taxation of an asset deal vs a for acts prior to the transaction. stock deal for a “C” Corporation. This is a much more legally palatable transaction from the As you can see, for the Selling Shareholder, the after-tax cash buyer’s standpoint. available on a hypothetical Lastly, there is a limitation to $10,000,000 transaction can be being able to consummate an very significant in structuring asset deal. The limitation being the deal as an asset purchase the corporate structure of the if the Selling Company is a C Selling entity. If the Selling Corporation. With that in mind, Company is a “C” Corporation, for most insurance distribution then an asset deal may not be firms, an S corporation or LLC, financially viable to the selling or other “pass through” entity shareholders as there are 2 levels structure is the most tax efficient at the time of a transaction. of taxation. creates a scenario or deal, where the buyer will assume all unknown and prior liabilities of the company they are buying. In an asset purchase, the buyer is able to carve out specific assets and liabilities that are being purchased or assumed.
In summary, the deal structure one uses when selling their agency can greatly impact both the seller and the acquirer. It is important to discuss your specific scenario with you accountants, tax advisors and M&A advisors to determine what deal structure maximizes value for you.
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AUGUST 2017
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