Structuring Deals

Why Deal Structure is important

  • Often, sellers become fixated solely on the purchase price while neglecting the importance of overall deal structure.
  • Properly structuring a transaction is just as important as negotiating valuation. Expertise in structuring the terms and conditions of a transaction is critical to securing and preserving maximum value.
  • Mistakes in structuring a transaction can significantly erode the hard fought value a seller has managed to negotiate.
  • For an owner that is interested in remaining actively involved in the business after the sale, structuring a proper earn-out or employment agreement can add significant value.
  • For a seller that desires only partial liquidity, structuring a stock transaction allows the business owner to realize monies over time and capitalize on favorable tax deferred treatment.

Asset deal vs. stock deal

  • When determining the consideration that will be received from the sale of a business, it is important to understand the tax implications of the various options.
  • Asset Deal: The seller is paid for the assets of the business and retains specified liabilities. From a tax perspective, an asset deal may translate into a large upfront tax liability for the seller.
  • Stock Deal: The seller is paid for the company’s shares and does not retain any liabilities. If paid in stock, the seller has the ability to take advantage of long-term capital gains tax rates by retaining buyer’s stock over a period of time. To mitigate risk, the value of stock received from the buyer can be “locked-in” with the use of collars, puts and options, allowing the seller to preserve value.
  • Long-term capital gains tax rates are at an all time low, allowing sellers to retain more value for their company than ever before. Currently, a seller will pay only a 15% long-term capital gains tax rate (the lowest in history). However, the rate will be phased up to 20% over the next five years.

Sunbelt’s representatives have extensive experience structuring the most complex of transactions

  • Sunbelt’s experience structuring transactions from a financial, accounting, and legal perspective. We are experts in structuring favorable transactions that maximize value for our clients.
Deal Structure Considerations
Asset deal Stock deal
Risk considerations

  • Seller retains liabilities and contracts not specifically assumed
Risk considerations

  • Seller not responsible for company liabilities
Tax considerations

  • Immediate tax hit to buyer
  • Affords buyer ability to write up assets (tax basis), increase deductions and after-tax cash flow
Tax considerations

  • Seller not responsible for company liabilities
  • Elimination of double taxation for buyer