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

 

Sunbelt of the Greater Bay Area
2001 Gateway Place, Suite 230E San Jose, CA 95110 Phone (408) 436-1900 Fax (408) 436-1996
6700 Koll Center Parkway, Suite 130 Pleasanton, CA 94566 Phone: (925) 600-0414 Fax: (925) 369-7270

Web Site Design and Hosting by Online Design, Inc.