Bellatoris Consulting, LLC

Archive for the ‘M&A’ Category

3 Questions M&A Teams Don’t Ask (But Should)

In M&A on June 13, 2012 at 2:39 PM

Slapdash

Slipshod

Shoddy

What better way to lead off this list by throwing out three adjectives that sometimes describe the way mergers and acquisitions go down.

Don’t take this the wrong way, I’m not trying to show any disrespect for the M&A professionals of the world.  Instead, it’s the process I’m commenting on.

When these deals are in the works, the players involved have to act fast.  If the word gets out, the deal can quickly go south.

At the same time, you need to assemble a core group of players that can ensure the deal is smart move.  If too many people are involved, the deal will take forever to get everyone’s blessing.

Ideally, an M&A deal would include the best of both worlds: speed and accuracy.

Often, portions of the due diligence that should have been done on the front end will get delayed until after the deal has been inked.

Think of it like buying a used car from someone on Craigslist.  It may look great at first, but when you take it in for service the next day, you find out that the engine and transmission require thousands of dollars worth of repairs.  Ouch!

Ideally, sales taxes would be hot on everyone’s mind when M&A deals are in the works.  Don’t forget – when you acquire a company, you also acquire it’s liabilities.

If you were buying a company that had $1 million in unpaid sales/use tax liabilities, do you think that should be considered when determining the purchase price?

You bet!

Do unpaid sales/use tax liabilities go unnoticed in M&A deals?

You bet!

So, here’s a list of three simple questions that M&A teams should ask during the due diligence process:

  1. Where does the target company have nexus for sales/use tax purposes?
  2. Where does the target company file sales/use tax returns?
  3. Do the answers from questions 1 and 2 match up?

Sure, there are dozens of other sales/use tax questions you can ask in a due diligence process, but these three do a great job of getting the party started.

I’ve seen M&A deals stall because of 7-figure sales tax liabilities.

I’ve also seen M&A deals go through without a hitch, only to have the acquiring company uncover 7-figure sales tax liabilities when it’s too late.

How about you?

Do you have any gory sales tax stories that come from slapdash, slipshod, or shoddy M&A deals?  If so, leave them in the comments section below!

Three Sales Tax Take-Aways from Tiling a Bathroom

In Compliance, M&A, Use Tax on May 28, 2012 at 4:25 PM

 

 

If you’ve been keeping up with this blog, you’ve probably figured out that I enjoy doing home improvement projects.  Don’t laugh, but the sales tax nerd inside of me finds these projects to be great inspiration for my consulting practice.

When I decided to tackle the damaged tiles in one of my bathrooms a few years ago, I was nervous because I had never done any tile work before.

To prepare, I read books, watched videos, and even attended a “Home Improvement 101” class.

Along the way, I learned a valuable lesson: you need to obsess over the first row.

While some may argue that you need to obsess over each tile you lay, the first row is critical because it sets the trajectory for the entire project.  If that first row is slightly skewed, the whole room will be off center.

Connecting the Dots

1) When your company rolls out a new product or service, make sure you’re aware of any new sales tax and/or use tax responsibilities.

2) When your company opens a new office or expands its operations into a new jurisdiction, make sure you’re aware of any new sales tax and/or use tax responsibilities.

3) When your company acquires another company, make sure you’re aware of any new sales tax and/or use tax liabilities that you just inherited.

When a change occurs, that’s the best time to make sure that you’re aware of any new sales tax and/or use tax responsibilities.

If problems go unnoticed, and years pass, what started as a minor level of exposure can grow exponentially (topped off with a generous helping of interest and penalties).

Obsess over the first row of tile to get a beautifully remodeled room.

Obsess over the new aspects of your business to get a big fat bonus (after your CFO sees how much money you saved the company).


The Five Dollar (and twenty five cents) Footlong

In Budgeting, Compliance, M&A, Profit on November 30, 2011 at 3:05 PM

I went to lunch the other day at my local fast food sandwich shop.  I won’t say the name of the chain because they don’t pay me for an endorsement (YET!).  Let’s just call them Hoagie Way.

I was standing in line behind a boy who couldn’t have been older than 7 or 8.  I was caught off guard for a second because he was by himself.  Evidently it was one of those teacher workdays for the county schools, so he was apparently on his own for lunch that day.

As he got up to the counter, he ordered a footlong ham sandwich.  (I was impressed because that’s quite a meal for such a little dude!)

When the boy was asked if he wanted anything else on the sandwich besides the ham and cheese, he went down the line, topping-by-topping, and asked everything.  (The profit margin on that sandwich had to be next to nothing!)

A teenage girl was working the cash register that day.  When it was the boy’s turn to pay, she flashed him a quick smile and asked him what kind of sandwich he got.  He confidently said, “I got a $5 footlong ham sandwich!”

She hit a few buttons on the register screen and replied, “That’ll be $5.25 please.”

The boy’s confidence seemed to be pierced when he heard the price.  He reached into his pocket and pulled out a wadded up $5 bill.  “Wait, I only have $5.  I thought this was a $5 footlong.”

The cashier apparently saw the boy getting flustered, so she leaned a little closer and said “You’re right, the sandwich is $5, but I have to charge you sales tax.  That’s why it’s $5.25.”

In a borderline whimper, the boy said, “My mom only gave me $5 for my lunch today.”

The cashier looked panicked because the line was backing up and this little boy was on the verge of tears.  I put my sandwich down on the counter and started to dig through my pockets for a quarter.

Before I was even able to find a single coin, this youngster reached over to the tip cup and helped himself to a quarter.  He said, “My mom always leaves change in this jar, so can I use some of it now?”

Surprisingly, the teenage girl didn’t mind.  She flashed him a smile and he went over to a table and attacked his sandwich in a manly fashion.

Watching that whole scene play out really hit home for me.  I’ve helped a lot of clients who only had a lonely $5 bill wadded up in their pocket when they wanted a ham sandwich.  Unfortunately, most of them couldn’t reach over the counter to snag a quarter from the tip cup when it came time to pay.

Instead of working with $0.25 in sales tax, my clients tend to talk about $2,500 $25,000 or even $2,500,000 at a time (one time on a huge M&A deal).  Forgetting about 5%-10% of your costs can cause financial catastrophes for budgets and profit margins.

If you plan on buying lunch tomorrow, make sure you remember to grab a handful change before you leave for work.  If you’re not sure how much change to grab – I’ll be happy to help you crunch some numbers!


Three Deal Breakers for Acquisitions

In M&A on September 30, 2011 at 10:53 AM

Many people look at the stock market, the housing market, and unemployment rates as prime indicators of the economy’s health.  Those are fine and good, but I also like to look at recent mergers and acquisitions.  When M&A is hot, so is the economy.

When CEOs and bankers get on a roll for M&A activity, it’s hard to slow down that train.  Remember the old adage “haste makes waste”?  Here are three examples of sales tax and use tax problems that can cripple a hastily-executed acquisition:

  1. The target company’s unpaid sales tax or use tax liabilities;
  2. Your company’s unpaid sales tax or use tax liabilities (if you’re getting acquired); or
  3. Sales tax liabilities that may result from the acquisition itself.

What does this all mean?  See the sound bites below:

Issue #1 above: When you acquire a company that has unpaid sales tax or use tax liabilities, you are now the proud owner of those liabilities.  States will hold you accountable for those amounts even though they were generated by the legacy company.

Issue #2 above: When an acquiring company uncovers your unpaid sales tax or use tax liabilities, that’s often a matter that’s handled through downward purchase price adjustments or escrow accounts.  To protect themselves, companies in this situation will be overly cautious in determining the amount of the potential liability.  Get your house in order before-hand so you don’t give away more than you need to at the bargaining table.

Issue #3 above: In certain occasions, assets or inventories may be subject to sales tax as a result of the acquisition itself.  Make sure you’re aware of the potential liabilities that may be triggered from this event.

All of that being said, let’s go out there and strike up some M&A so we can get this economy firing on all cylinders again!!

 

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