A best practice approach to international deal structuring
Finding the ideal acquisition target that is also a great strategic fit with an existing business, can often seem like an impossible task. This is particularly true if that target is in another country, given the extra difficulty in conducting detailed research and due diligence.
Once these barriers are cleared and the green light is given to acquire, many executives are eager to push through the transaction and gain the benefits of their hard work up to that point. This is where calm, considered professional advice is crucial.
Structuring the physical transaction can seem like a formality, but it is actually highly complex and crucial to future success. Especially across borders.
Legislation can differ substantially depending on the jurisdictions and the types of transactions involved. A share deal, for instance, will usually need to take account of the laws of the country in which the company to be purchased has its seat. If this is a civil law jurisdiction, then any share transfer must be officially notarised before it is legal.
Asset deals are often treated differently, because the purchase may be viewed under local law as a ‘going concern’. In such cases buyers may be responsible for existing or ongoing debts and liabilities. If employees are included in the ‘asset value’, then strict employment regulations might need to be considered, particularly in some European countries. Asset deals may also require the use of a special purpose vehicle (SPV), and there are further considerations around whether that can be an offshore holding company, or whether it must be located in the same jurisdiction as the assets being purchased.
These legal aspects of deal structuring are closely tied to tax considerations. Often the tax perspectives of buyers and sellers will differ, creating tension around the structuring of any deal. In many jurisdictions, sellers will often find a share deal more tax advantageous, while buyers might prefer to purchase the assets. In some cases, sellers will demand recompense for any
extra tax incurred as a result of an inefficient deal. Competent advisors will understand the full implications of this and advise their clients accordingly.
Tax structuring is always complex, but even more so during an acquisition process, when a structure has to take into account the efficiency of the actual transaction and also the new business, on an ongoing basis, following deal closure. Double taxation treaties (DTTs) are important to minimise tax, while an understanding of changes to overarching regulations implemented by bodies such as the Organisation for Economic Cooperation and Development (OECD) is also useful.
All jurisdictions will have different rates of capital gains and corporate tax applicable on purchases, while some will have other taxes such as registration tax. Participation exemptions will apply in some cases, depending on the type of deal, as will incentives in areas such as technology or innovation.
This feature draws on the expertise of six M&A professionals from important jurisdictions across the world. Each individual has significant experience of closing deals with international clients, and provide their own perspectives on how best to streamline any structures involving their jurisdiction.
Read the rest of the document and find expert advice by Urs Breitsprecher on international deal structuring by downloading the pdf: https://aquan.com/wp-content/uploads/2019/06/IR-MA-Virtual-Series-2019-Streamlined-Structures.pdf