Tips and techniques about acquisitions to grow you business

1. How to Grow Your Business
By Making Acquisitions
June 27, 2012
Presented by:

2. Welcome
• Jerry Kelsheimer
– President, Fifth Third Bank

3. Agenda
• Anatomy of an Acquisition
• Buyside Merger & Acquisition
Considerations and Market Overview
• Mezzanine Capital Overview
• Tax Merger & Acquisition Considerations
• Q&A

4. Anatomy of an Acquisition
Kenneth M. Haffey, CPA, CVA
Skoda Minotti

5. Anatomy of an Acquisition
Pre- Due Deal Post-
Diligence Acquisition
Acquisition Negotiation Acquisition

6. Pre-Acquisition
• Assess acquisition strategy and alternative expansion options
̶ Evaluate acquisition capacity
̶ Corporate capabilities
• Industry / market monitoring
• Industrial / market segmentation analysis
• Competition analysis
• Assisting with debt and/or equity channels

7. Due Diligence
• Quality of earnings
• Review of accounting policies
• Unrecorded liabilities
• Working capital trends
• Financial reporting review
• Tax diligence
• IT controls review
• ERISA compliance review
• HR regulatory review
• Develop preliminary valuation model
̶ Pro-forma earnings and cash flow model
̶ Valuation and pricing
̶ Preliminary purchase price allocation

8. Deal Negotiation
• Assist with negotiation
• Review and consult on documentation
• Purchase price adjustments
• Financial and tax structuring

9. Acquisition
• Purchase price allocation / purchase accounting
• Intangible asset valuation

10. Post-Acquisition
• Conduct final purchase price review
• Provide full post-merger integration support
• Integration plan management
• Organization and operational structure design
• Compensation structuring
• Benefit plan audit
• Technology planning

11. Buyside Merger &
Acquisition
Considerations and
Market Update
Jonathan L. Ives, CFA
Fifth Third Bank

12. Status Quo versus Growth by Acquisitions
Growth Through
Status Quo Acquisition
Benefits • Perceived low risk strategy • Build overall critical mass / increase market
• No significant additional resources to execute position
• Minimal impact on current management, • Capitalize on potential operating synergies
employees and community • Enter market/product niches and new
• Maintain current ownership levels and geographies
operational control • Improve returns to equity holders
• Could result in enhanced shareholder value • More sharply define strategic
over time if forecasts are met or exceeded direction/position Company for a future
sale/liquidity event
Issues • Does not significantly mitigate fundamental • Exposed to execution and post-deal
strategic, financial and market risks or issues integration risk
• No growth / acceleration of value • Additional leverage could restrict organic
• Could erode shareholder value over time growth
• Competitors may gain market share through • Impact on key constituents - management,
acquisition employees and community

13. Characteristics of a Successful
Acquisition Program
Exhaustive
• Assess a large number of opportunities –
research What targets exist and at what prices?
Go direct
• Approach targets directly with a consistent message,
(Buy wholesale getting a seller to the table may take time
not retail)
̶ Do not wait for an investment banker to send a book as part of an
auction.
• It is more advantageous to sell the non-financial benefits
Don’t focus on
price too early first and address the price once there is momentum.
̶ But, balance that with avoiding sellers with unrealistic price
expectations.
• Manage conversations with multiple potential targets.
Cultivate
alternatives ̶ Shift the balance of power between the acquirer and the target.
̶ The best acquisition campaigns ensure that the deal pipeline is
always full.

14. Target Company List Creation and
Contacting Targets
• Develop acquisition strategy and criteria and establish research
parameters.
̶ Identify market segments with greatest opportunity and create detailed acquisition
criteria to focus and prioritize target research.
̶ Determine which company specific research is necessary to evaluate each target.
• Develop target universe using research to identify targets that meet
the targeted criteria.
• Qualify selected targets and conduct more in-depth research on all
qualified targets within the universe.
̶ Further prioritize and select a focused list of companies for approach.

15. Target Company List Creation and
Contacting Targets (cont.)
• Communicate directly with target decision-makers
̶ Highlight your company’s strengths, strategy, reasons for interest and plans for the
target.
̶ Include target company research in the message to communicate understanding of
their business.
• Continue to pursue and communicate with senior people at the target
in a confidential manner.
̶ Regularly share the successes your company (new customer wins, joint ventures,
recent expansions, etc.)

16. Layers of the Capital Structure
Layers of the Capital Structure Expressed in Terms of EBITDA Leverage
Alternatives include:
Sale of Equity in
Common Stock Acquirer’s Business,
(Majority Interest) Personal Capital
Mezzanine Capital, (loan or equity) and
companies with Preferred Stock & Common Friends & Family
Equity (Minority Interest) (limited availability).
EBITDA greater than
$3, generally Subordinated Debt
involves an equity Could be done as
return component. Second Lien Debt unitranche
Senior Debt – cash flow
Senior Debt and collateral support.
ABL structure may have
advantages.

17. Acquisition Financing Alternatives –
Senior Debt
Revolving Credit Term Loan
Security Ranking • Senior – secured and unsecured • Senior – secured and unsecured
Tenor • Up to 5 years • 3-5 years
Amortization • None • Customized amortization
Pricing • Libor based grid • Libor based grid
Optional • Pre-payable at par • Pre-payable at par
Redemption
Financial • Maintenance covenants • Maintenance covenants
Covenants including: including:
1) Leverage ratio; 1) Leverage ratio;
2) Fixed Charge Coverage ratio 2) Fixed Charge Coverage ratio
Reporting • Full quarterly and annual • Full quarterly and annual
Covenants financial statements and financial statements and
covenant compliance reports covenant compliance reports
Timing • 4-6 weeks • 4-6 weeks

18. Acquisition Financing Alternatives –
Mezzanine Capital
Subordinated Debt Preferred Equity
Security Ranking • Subordinated • Senior to common equity
Tenor • 7-10 years • Redeemable / Putable
Amortization • Interest only • None
Pricing • 12-14% Cash and 2-4% PIK • 10% dividend, majority can be PIK
Optional • Varies by issue • Callable by issuer after pre-
Redemption determined time, typically at
premium to par
• May convert to common equity
Financial • Maintenance covenants (typically • None
Covenants less restrictive than bank)
Reporting • Full quarterly and annual financial • Full quarterly and annual financial
Covenants statements and covenant statements
compliance reports • Additional board seats if dividend
payments are missed
Other • N/A • Will likely require board seat
Considerations • Comprehensive pre-funding due
diligence required
Timing • 12-18 weeks • 12-18 weeks

19. Acquisition Financing Alternatives –
Mezzanine and Private Equity
Mezzanine Traditional LBO Growth-Oriented LBO
Characteristics • Provides subordinated • Traditionally industry • Targets high-growth
debt; often used to agnostic, may have industries, e.g.
facilitate leveraged geographic focus technology, healthcare,
transactions • Funds backed by alternative energy, etc.
• Can also provide institutional investors
preferred or minority
common equity
Benefits • Incremental capital for • Thousands of firms • Growth focus
MBO/LBO transactions represent broad necessitates lower
• Limited covenants investor base initial leverage levels
• Less equity dilution • Focus on growth, rather
than control equity than cost savings
Considerations • Increases risk profile • Clearly defined • Higher selectivity
• Expensive relative to investment parameters • May require greater
senior debt • Higher relative equity rollover
• Warrants result in leverage • Structure may involve
common equity dilution • Second liquidity event preferred shares for
required in 3 to 5 years investor

20. Acquisition Financing Alternatives –
Additional Equity Sources
Distressed / Special
Family Office
Situation
Characteristics • Private company that • Investments in financially
manages investments for a stressed companies
single wealthy family • “Rescue financing” to
companies undergoing
operational or financial
challenges
Benefits • Operates as both limited and • Accustomed to complex
general partner accounting situations
• Less intrusive on operations • Offers sellers speed and
• More flexible on deal size certainty
Considerations • Higher selectivity • Much lower valuations
• May perform poor in auction • Investor of last resort
• Less urgency for exit

21. Historical M&A Market Volume Trends
U.S. Middle Market M&A Volume ($100 to $500 million) U.S. Lower Middle Market M&A Volume (<$100 million)
200 1,200
180 1,100
160
1,000
140
900
120
100 800
80 700
60
600
40
500
20
0 400
061Q
063Q
071Q
073Q
081Q
083Q
091Q
093Q
101Q
103Q
111Q
113Q
121Q
061Q
063Q
071Q
073Q
081Q
083Q
091Q
093Q
101Q
103Q
111Q
113Q
121Q
• Source: S&P Capital IQ
• Note: M&A data excludes minority purchases, tender offers, spinoffs, exchange offers, repurchases, and withdrawn deals, as well as transactions with
non disclosed values.

22. M&A Drivers and Outlook
M&A
Catalysts Sentiment M&A Market Commentary
• The U.S. M&A market show signs of
Economic Outlook /
CEO Confidence +− strengthening but deal flow still limited
• Mixed economic outlook and fears over return
to recessionary conditions remain biggest
obstacle to an acceleration of M&A activity
Financing /
Leverage + • Debt markets remain strong with greater
leverage and favorable pricing
̶ Debt/EBITDA ratios for middle market sponsor
Valuation /
Seller Expectations +− transactions between 3-3.5x.
• Strategics are well capitalized and beginning to
ramp up M&A efforts to drive top line growth
• Private equity firms have hundreds of billions
Strategic Appetite + of un-invested capital on hand
• Valuations can be a barrier however prices are
rising as fundamentals have improved and
Financial
Sponsors + sellers are beginning to adjust value
expectations to normalized purchase multiples

23. Mezzanine Capital
Overview
William Weil, CPA
Fifth Third Securities

24. Market Comparison:
Bank, Private and Public Markets
• Companies looking to raise capital have three basic markets which
to source such capital.
Bank Loan Private Public
Types of of Offerings
Senior Debt, Mezzanine & Senior Debt, Mezzanine &
Types Offerings Senior Loans
Senior Loans Senior Debt, Mezzanine & Equity
Equity
Senior Debt, Mezzanine & Equity
Equity
Company Size (EBITDA)
Company Size (EBITDA) Any size
Any size $3.0 million minimum
$3.0 million minimum $25.0 million minimum
$25.0 million minimum
Minimum Deal Size
Minimum Deal Size None
None $3.0 million
$3.0 million $100 million
$100 million
Interest Rate
Interest Rate Floating
Floating Fixed, floating & variable
Fixed, floating & variable Fixed, floating & variable
Fixed, floating & variable
Maturity
Maturity Less than 5 years
Less than 5 years 3 to 30 years
3 to 30 years 5 to 40 years
5 to 40 years
Fewer & less restrictive than bank, but bank,
Fewer & less restrictive than
Covenants
Covenants Full Package
Full Package Minimal
Minimal
more difficult to amend
but more difficult to amend
Information
Information Confidential
Confidential Confidential
Confidential Public
Public
Providers Banks Institutional Investors Institutional Investors
Institutional Investors & Individuals &
Providers Banks Institutional Investors
Individuals
• Most middle market companies source their senior debt needs in
the bank market.

25. Mezzanine Capital Characteristics
• Typically takes the form of either junior secured debt, senior
subordinated debt or preferred stock/junior subordinated debt.
• Mezzanine capital provides issuers with capital that increases debt
capacity and strengthens the credit quality of the issuer’s senior debt.
• The primary investors in mezzanine financing are institutional
investors such as insurance companies and mezzanine funds.
• The overall cost of issuance makes mezzanine the kind of capital
companies “Need not Want”

26. Mezzanine Capital Characteristics (cont.)
• Investors receive their return from the following sources:
̶ Up-front Fee
̶ Fixed Current Pay (interest/dividend)
̶ Fixed Deferred Pay (Pay-in-Kind interest/dividend)
̶ Variable Deferred Pay (equity linked upside)
• Mezzanine financing typically incorporates equity linked upside in the
form of warrants, common stock, conversion features, or other equity
linked upside components. However, it can be arranged with or
without providing the investor with equity upside.
̶ The presence of a pay-in-kind (PIK) interest component can either reduce
or eliminate the need for equity linked upside.

27. Mezzanine Capital Characteristics (cont.)
• Granting a second lien on applicable assets could enhance the
perceived credit quality of subordinated notes. However, a careful
review of existing senior debt is necessary.
• Growth and/or intangible opportunities (synergies, market positioning,
new technology or products, recapitalization as a result of declining
operating results) are needed to justify the issuance of mezzanine
capital.

28. Market Assessment
• Under current market conditions, bank’s senior debt limit is 2.0 –
3.5 times EBITDA. Issuers with limited collateral and in cyclical
industries may have even tighter leverage constraints.
• By adding a layer of mezzanine debt behind the senior debt,
issuers can lever, on a total debt basis, 3.0 – 4.5 times EBITDA
(industry dependent).
• Many mezzanine investors are flush with cash and actively
pursuing refinancing transactions. A number of insurance
companies, which have limited below-investment grade appetite,
are focusing on mezzanine transactions to maximize the return on
their limited below-investment grade basket.

29. Market Assessment (cont.)
• Under current market conditions, investors will require the following
returns on subordinated debt, given various credit qualities:
Instrument Range of Expected Investor Return Range of Issuance ($ in millions)
Junior Secured Debt 9.0% to 15.0% $5.0 to $50.0
Senior Subordinated Debt 14.0% to 18.0% $5.0 to $75.0
Preferred Stock / Junior Sub. Debt 18.0% to 22.0% $5.0 to $50.0

30. Structural Considerations
• The ultimate goal of issuing mezzanine capital is to increase
flexibility. As with any capital instrument, greater flexibility generally
increases the cost of mezzanine capital.
• The mezzanine capital in a Company’s capital structure can serve
two basic purposes:
1. Permanent Capital:
 Ability to lever their balance sheet multiple times over a five to seven year period.
 Not concerned about reducing total debt, preserving liquidity to minimize the opportunity
cost of missing growth opportunities.
 For such flexibility, investors want upside as compensation for additional leverage.

31. Structural Considerations (cont.)
• The mezzanine capital in a Company’s capital structure can serve
two basic purposes:
2. Bridge Capital:
 Total debt reduced within 5-7 years through either sale of equity/assets or financial
performance. Purpose is to provide current liquidity until a point that it is no longer
needed.
 Issuer wants capital that provides current flexibility but at a lower cost, knowing that
leverage will be reduced.
 Investors behave like debt-holders and charge for deviations from the covenant
package. Typically look for step downs in covenants to assure timely repayment. Allow
for prepayment at a reasonable cost and less focused on equity upside.

32. Mezzanine Capital: Junior Secured Debt
• Provide issuers with growth capital at a lower cost than subordinated
debt; however, it is more restrictive.
• Allows issuer to extend senior financing.
• Investors are interested in two types of issuers:
̶ Those with excess collateral; and
̶ Those with minimal collateral that have a conservative leverage profile
(Debt to EBITDA) and strong franchise value.
• Note holders are granted a second lien on the Company’s assets.
• Payments of interest and principal are senior obligations of the
Company.

33. Mezzanine Capital:
Junior Secured Debt (cont.)
• Typical junior secured debt is structured with the following:
̶ A fixed rate of interest (significant portion can be in the form of PIK
notes);
̶ Matures concurrently with the longest term loan of the Company;
̶ Same covenants as bank facility;
̶ Cross defaults with bank debt; and
̶ Call protection (fixed schedule: Year 1, no-call; Year 2, 103%;
Year 3, 102%; Year 4, 101%; and par thereafter).
• Investors follow the same process as that of a subordinated debt or
preferred stock investor.

34. Mezzanine Capital:
Junior Secured Debt (cont.)
• Calculation of Investor Return (9.0% to 15.0% all-in-return):
̶ Investor Return is derived from an up-front fee, current cash pay
coupon and pay-in-kind (PIK) coupon. Typically, no equity upside is
granted to investors.
• Inter-creditor terms are as follows:
̶ Pari-passu with other senior lenders in right to payment prior to a
payment default.
̶ Subordinated to other senior debt in liquidation.

35. Mezzanine Placement Process
(Customized to meet Issuer Concerns)
Advisor Selection Week 1: Authorization of Fifth Third as financial advisor.
Due Diligence Week 2: Fifth Third due diligence meeting.
Approximately 14 to 18 Weeks
Weeks 2-4: Preparation of Confidential Informational
Information Memorandum / Collect
Memorandum by Fifth Third. Contact prospective investors and
Confidentiality Agreements collect CA’s.
Week 4-5: Marketing of transaction commences. Information
Memorandum is distributed.
Marketing of Transaction Week 5: Investor Conference calls conducted
Week 6: Investor Road Show /Visits arranged.
Week 7: Term sheets received. Finalize business points and select
Term Sheets Received / investor (typically one investor). Term sheet signed and investor
Investor Selection due diligence commences.
Week 8 to 16: Due diligence meeting for investors, quality of
Investor Due Diligence earnings review and other consulting work if necessary.
Closing Weeks 17-18: Documentation, closing and funding.

36. Considerations for Issuers
• Timing Critical • Financial Covenant Package
̶ Pre-acquisition Considerations
 Expensive ̶ Similar to Bank Facilities with wider
̶ During levels
 Can be coordinated with other due ̶ Standstill period
diligence ̶ Payment blockage
 Will need to submit an LOI with
financing contingency • Marketing Strategy
̶ Post ̶ Coordination with Bank Facilities
 Limited capital available for Bridge ̶ Inter-creditor issues key
Financing to a Mezzanine Financing
• Broad vs. Narrow Marketing
• Investor Due Diligence ̶ Confidentiality is critical
̶ Site visits ̶ Broad effort can be time consuming
̶ Quality of earnings (acquirer and ̶ Test market for structure and pricing
target)
• Issuance Costs
̶ Market review
̶ Private Placement Agent Fee
̶ Legal Review
̶ Investor Up-front Fee (part of return)
̶ Investor Counsel & Consultants
̶ Company Counsel ̶ Miscellaneous

37. Senior Debt Market Update - Middle Market
• Commentary • Average Debt Multiples of MM Loans
• Last week, the middle market loan market had a solid batch 6.0x
of new money deals, including a pair of acquisition loans and 5.0x
4.8x
4.6x
4.4x 4.5x 4.5x
a pair of LBO transactions. Yet, issuance volume is trailing 4.2x 4.1x 4.0x 4.1x 4.2x 4.0x
3.8x 3.9x
2Q11. 4.0x
• Market sentiment was more upbeat, certainly compared to 3.0x
recent weeks, but issuance volume remains less than 2Q11
2.0x
volume.
1.0x
• Large MM issuance of $10.9 billion so far in 2Q12 is behind
2Q11 levels by 24%. Traditional MM volume trails by 43%. 0.0x
• Even though, supply is still lackluster, selectivity is seen in
the market as a few deals have been passed over. In fact
middle market yields widened to the 7.7% context in June, FLD/EBITDA SLD/EBITDA Sub Debt/EBITDA
after dropping below 7.0% in April.
• Premiums between middle market and large corporate B-
rated credits declines in the second quarter of 2012.

38. Senior Debt Market Update –
Middle Market (cont.)
• MM Non-Sponsored Issuance: Large & Traditional • Average New-Issue First-Lien Stats (last 90 days)
$ in billions
$40
Spread (L+) Floor (bps) Offer Price YTM
$35
Middle Market 587 137 98.40% 7.80%
$30
Large Corporate (All) 485 129 98.50% 6.66%
$25
Gap (bps) 101 7 10 114
$20
$15 Middle Market 587 137 98.40% 7.80%
$10 Large Corporate (Single-B) 497 131 98.60% 6.77%
$5 Gap (bps) 90 6 14 103
$0
2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12
Traditional Large
• Note: Non-sponsored issuance data as of June 6, 2012. Other data as of June 14, 2012.
• Source: Thomson Reuters LPC, S&P LCD

39. Senior Debt Market Update
– Asset-Based
• Commentary • Total ABL Volume and Deal Count ($ billions)
• Asset-based lending got off to a slow start in 2012, ABL Volume Deal Count
gaining momentum several weeks into 1Q12. Over 50%
$35 140
of the $19.1 billion in asset-based volume syndicated
during the quarter was raised in March alone. $30 120
• New deal flow was limited at a thin 17% of total issuance, $25 100
given the absence of M&A. Unsurprisingly, this gave rise $20 80
to intensified competition and looser terms. Fixed assets
increasingly crept into deal structures as spreads drifted $15 60
down modestly to what many believe to be a market $10 40
bottom.
$5 20
• Lenders noted that while deals became more aggressive
by several measures, they were also far more likely to be $0 0
1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12
scrutinized by credit committees. Ultimately, drawn
spreads on asset-based credits remained fairly stable
compared to last quarter, closing out Q1 2012 at roughly
LIBOR + 228.

40. Senior Debt Market Update –
Asset-Based (cont.)
• Average ABL Pro Rata Pricing (bps) • ABL Refinancings as Percentage of Total ABL Issuance
Drawn Refinancings as % of Total
500 90%
450 80%
400 70%
350
60%
300
50%
250
40%
200
30%
150
100 20%
50 10%
0 0%
1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 2004 2005 2006 2007 2008 2009 2010 2011 1Q12
• Note: All data as of March 31, 2012.
• Source: S&P LCD, Thomson Reuters LPC

41. Tax Merger & Acquisition
Considerations
Patrick O. Mullin, CPA, CMA
Skoda Minotti

42. Agenda
• Taxable Stock Deal
• Taxable Asset Deal
• Tax-Free Exchanges
• Planning Opportunities
• Due Diligence
• Other Items

43. Taxable Purchase of Stock
P purchases all of T’s stock for cash and/or notes

44. Taxable Purchase of Stock (cont.)
• In a taxable stock purchase, T’s shareholders recognize the gain or
loss (usually capital) realized on the sale of their T stock.
• P’s basis in the T stock is equal to the purchase price paid by P plus
expenses (such as legal fees) of effectuating the acquisition.
• T recognizes no gain or loss on the sale of its stock, and T's basis in
its assets after the acquisition remains the same as before the
acquisition (absent an election under Code §338).
• T’s other tax attributes are generally not affected by the acquisition
(absent a Code §338 election).
• T's ability thereafter to use its Net Operating Loss, Capital Loss and
tax credit carry forwards may be limited.

45. Stock Sale Advantages & Disadvantages
Advantages
• Legal liability for seller
• Old shareholders get capital gain treatment
• Carryover tax attributes
• Available with any transaction
• No special tax compliance required
Disadvantages
• Legal liability for purchaser
• No step-up in basis
• Tax attributes can be limited

46. Taxable Purchase of Assets
P purchases all of T’s assets (and generally inherits T‘s liabilities) for
cash and/or P notes.

47. Taxable Purchase of Assets (cont.)
• In a taxable asset purchase, P takes a basis in T’s assets equal to
the purchase price paid by P plus any T liabilities transferred to P
plus P's acquisition expenses (such as legal fees).
• All of T’s assets normally generate deductions (depreciation,
amortization, cost of goods sold, and the like).
• T recognizes full gain or loss on the sale of its assets.
• T’s tax attributes ̶ e.g., Net Operating Loss, other carryovers and
tax accounting methods are not acquired by P.

48. Taxable Purchase of Assets (cont.)
• T's NOLs and other carryovers are, however, generally usable by T
to offset gain on the asset sale.
• T’s shareholders do not realize taxable gain or loss on T's asset
sale, unless T liquidates (except that where T is an S-Corporation.
• There is generally double tax where T sells its assets and distributes
the proceeds to its shareholders in liquidation.

49. Asset Sale Advantages & Disadvantages
Advantages
• Limited or no legal liability for purchaser
• New owners get asset basis step-up for purchase price
• Tax attributes are retained by seller
Disadvantages
• Legal liability for seller
• Purchaser does not get tax attributes
• Seller may have some ordinary gain
• Compliance requirements (Form 8594 - Asset Allocation Statement)

50. Tax Free Exchanges
“A” reorganization

51. Planning Opportunities
• Internal Revenue Code Section 338(g) election (not very common)
̶ “Old” target company deemed to have sold all its assets – offset with
Net Operating Losses?
̶ “New” target company deemed to have acquired all of the assets the
next day = step up in basis for larger depreciation and amortization
purposes.
̶ Does not affect the purchasing company’s basis in target company.
̶ Purchasing company alone makes the 338(g) election.

52. Planning Opportunities (cont.)
• Internal Revenue Code Section 338(h)(10) election (much more
common)
̶ Stock sale treated as an asset sale.
̶ Advantageous if seller has gain on target company stock and gain on
its’ assets.
̶ Preserves target company’s tax attributes (Net Operating Loss?) for the
benefit of the seller.
̶ Buyer gets step up in basis for larger depreciation and amortization
purposes.
̶ Election jointly made by buyer and seller.

53. Due Diligence
• Income Tax – Federal, State and Local
• Franchise Tax
• Employment/Payroll Tax
• Sales & Use Tax
• Property Tax
• Foreign withholding & reporting
• Unclaimed Funds

54. Other Items
• Financing Costs - deductible over the term of the financing
• Deal Costs:
̶ Generally, costs to acquire are required to be capitalized – facilitative?
̶ Some may be amortizable and others may attach to basis in stock of
acquired company.
̶ Nature of the cost and timing often the difference between deductibility
and capitalization – general M&A exploratory cots? Pre or Post LOI?
Integration Costs?
̶ Success based fees safe harbor – 70% non-facilitative and deductible,
30% facilitative and capitalized.

55. Questions?
• Gregory J. Skoda, CPA
– Chairman, Skoda Minotti

56. Contact Information
• Kenneth M. Haffey, CPA, CVA
– khaffey@skodaminotti.com; 440.449.6800
• Jonathan L. Ives, CFA
– Jonathan.Ives@53.com; 216.274.5045
• William Weil, CPA
– Bill.Weil@53.com; 216.274.5992
• Patrick O. Mullin, CPA, CMA
– pmullin@skodaminotti.com; 440.449.6800