As year-end approaches, here are a few planning tips you may find useful. TIP #1: Which M&A-Related Tax Forms to Expect, and When. If you were a securityholder in a company that was sold in 2017, you will likely receive a tax form reporting the amount of proceeds that were distributed to you. In addition, you may receive additional tax forms related to companies sold prior to 2017 if you received post-closing proceeds from escrow releases or milestone payments. These proceeds are typically reported on IRS Form 1099-B, which, if required, must be sent to you by February 15, 2018.
The fundamental investment priority of an escrow is to ensure that the assets held in trust are safe and secure. Considering this primary goal and the need for immediate liquidity, escrow investments are typically not viewed as accounts that are associated with earning high yields. However, a creative and well-crafted escrow investment can offer the potential to contribute meaningfully to returns without sacrificing the safety of the escrow assets or the liquidity requirements.
The 2014 SRS Acquiom M&A Deal Terms Study found that 66% of deals in 2013 included some sort of post-closing purchase price adjustment, typically based on a combination of the seller company’s working capital, cash, debt and transaction expenses. In the majority of such deals, any dispute over the purchase price adjustment is referred to the independent accounting firm that was agreed upon and named as the chosen arbitrator within the acquisition agreement. Since the arbitrator has already been named, it would seem that the arbitration process would be relatively simple and straightforward. In reality, however, SRS Acquiom has found that implementing the arbitration process with an accounting firm is often a difficult and time-consuming process.
Taking the easiest way out is rarely the best decision, and that can be abundantly evident in M&A deal disputes settled through arbitration.
An analysis of merger agreements closed since the November, 2013 Great Hill ruling reveals no apparent consensus on how selling companies are assigning rights of attorney-client privilege related to pre-closing communications. Some agreements are silent on the issue, while others variously assign the privilege to the target company shareholders as a group, to the shareholder group and their post-closing representative, or to the representative only. We analyzed the frequency of these alternative formulations and discuss their pros and cons. Whichever approach is chosen, this is an important issue that should be considered by all selling companies in a merger and their shareholders
How your deal treats the payout of employee stock options can have significant payroll tax implications
When an acquisition deal is structured such that the target company’s employee stock options will be “cashed out” or automatically deemed “net exercised,” it can result in the payment of substantial payroll taxes by both the buyer and the employee that may have been avoided. There are numerous ways to handle employee stock options, all of which have varied tax consequences. For each treatment, it is important to understand the unique tax implications, as well as how those laws may be used most favorably for the participants involved. Additionally, understanding ideal treatment of an Incentive Stock Option (ISO) as well as structuring flexible plans can offer a solid solution for buyers and employees resulting in positive tax benefits.
As the US economy continues to show signs of improving health and interest rates generally trend upwards, it is an appropriate time to take inventory of an area deeply embedded within the fiscal and regulatory crosswinds of the times: Money Markets. Regulators’ efforts to protect Money Market investors via October 2016 reforms to Rule 2a-7 and other legislation have led to a significant exodus from prime to more secure government funds. This supply-demand mismatch is a powerful signal that the reforms are upending institutional cash management and changing the dynamics of historically under the radar instruments like M&A Escrow.
We recently sat down with Martin Woll, AXA US Head of Institutional Savings, to discuss Mergers & Acquisitions through the lens of the oft-overlooked escrow.
By Christopher Letang, Managing Director, Professional Services, SRS Acquiom
Many sellers experience the anxiety of knowing too little about an earnout that isn’t meeting expectations. Reports of a selling company’s performance often contain little information other than whether or not the earnout targets have been achieved. If the seller isn’t granted information rights under the merger agreement, an earnout that isn’t performing could descend into a dispute, even if the relationship between the seller and acquirer was civil when the deal closed.
By Susan Milberger, Director, Payments, SRS Acquiom
Closing can be the most stressful time of an M&A transaction, with deal fatigue setting in and deal parties and their counsel handling a number of last-minute issues to get the deal over the finish line. One of those issues is selecting a payments administrator to distribute closing payments to selling security holders. This decision should not be hard, but there are a number of things to keep in mind. We’ve put together a quick checklist of the top 10 things to watch for in M&A payments to make the decision an easy one when the time comes.
By Lisa Caesar, Director, Business Development, SRS Acquiom
For almost 50 years, acquirers in M&A transactions have used, almost exclusively, just two types of investments for M&A escrows – bank deposit accounts and institutional money market accounts. The need for principal protection and immediate liquidity largely drove decision making. Also, no other suitable options existed. These investment options appear to have done an average job meeting the basic needs of merger parties. Consequently, indemnification escrow investment selection is often relegated to the last minute in the acquisition process and usually not given much thought.
By Lisa Caesar, Director, Business Development, SRS Acquiom
As anyone who has flown since 9/11 can attest, the price of safety is the diminishment of convenience. The same holds true when it comes to the investment landscape in a post-credit crisis marketplace. Liquidity is becoming increasingly challenging and this will continue. Understanding the changes that are quickly accelerating is important in order to mitigate the inconveniences and potential negative impacts for short term investments, including corporate cash and M&A escrow deposits.
On September 14th, AXA Equitable, SRS Acquiom and the Escrow Shield Plus team were pleased to welcome members of the M&A community to NYC for a special conference, Global Forces Impacting M&A.
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