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Strategic Use of Mergers & Acquisitions and Joint Ventures
Make initial contacts with identified targets to explore potential strategies for partnership
Monitor websites that list businesses for sale, and reach out to investment banks and business brokers to learn about their existing sell-side clients
Be prepared to execute the seller’s form of Confidentiality Agreement prior to receiving any detailed information
Review available information on the target, and request additional data, as needed
Prepare financial models reflecting the effects of the acquisition and quantify any available synergies. Sellers may request preliminary valuation feedback before proceeding to in-person meetings
If interest exists to move forward, visit the target’s headquarters to meet the management team and tour the facility. More detailed information is typically made available at this stage
Based on information obtained to-date and with support of shareholders and financing sources, prepare a formal, non-binding letter of intent to make the acquisition
Identifying Targets And Initial Due Diligence Internal Preparation
Define high-level acquisition strategy, including rationale(s) for acquisition, characteristics and deal size of ideal target, etc.
As possible, develop a list of potential targets, such as high-quality competitors, joint venture partners, other members of industry trade groups, etc.
Coordinate the assembly of a professional deal team, including experienced transaction attorneys, investment bankers/buy-side brokers, an accounting diligence firm, and other advisors
Begin assessing long-term capital needs, including meeting with bankers and expanding financial flexibility as needed
Closing the Transaction (8-10 weeks)
If agreement on transaction price and structure is reached, proceed to closing through multiple and simultaneous “work streams” (1) :
Conduct confirmatory due diligence
Financial/Accounting and Tax
Sales & Marketing
Legal and Risk Management
Negotiate Purchase & Sale agreement and disclosure schedules
Secure transaction funding (as needed)
Execute P&S agreement and close
Buy-Side M&A Process (1) See next slide for a diagram of a coordinated buy-side due diligence and closing process.
Target Company Operations / Manufacturing Sales & Marketing Environmental Legal & Intellectual Property Acquiring Company Real Estate Risk Management Accounting Finance & Treasury Human Resources & Benefits Buy-Side Financial Advisor HR and Benefits consultants, if appropriate 3 rd party insurance providers, if appropriate Appraisal firms, if necessary Transaction services team, if desired Banks & Financial institution discussions Outside Counsel Consultant for market study, if appropriate Environmental consultants, if appropriate Tax work and review with Auditor Coordinated Buy-Side Due Diligence and Closing Process
Corporate vs. LLC form: Corporations do not have "flow through" tax treatment and hence are required to file tax returns. Limited liability companies, on the other hand, have "flow-through" tax treatment and are not required to file income tax returns; rather their parent companies must file income tax returns in the United States. Since most foreign companies do not want to file tax returns in the United States, the preferred form of entity for U.S. operations of foreign companies most often is the corporation.
Worldwide Income Taxation (subject to foreign tax credit regime)
Income Tax . The revenue generated by the U.S. subsidiary or U.S. operations of a foreign business will be subject to taxation in the U.S. This tax is assessed at the federal and state levels.
Federal Tax . Federal income tax rates are set depending upon many factors. Federal corporate tax rates range between 15% and 39%; the average tax rate is typically 35%.
State Tax . State income tax rates are set forth on a state by state basis. The current rate for corporate income tax in North Carolina is 6.9%. This is lower than many other states, including California (8.84%) and New York (7.5%-9%).