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?
Do unpaid sales/use tax liabilities go unnoticed in M&A deals?
So, here’s a list of three simple questions that M&A teams should ask during the due diligence process:
- Where does the target company have nexus for sales/use tax purposes?
- Where does the target company file sales/use tax returns?
- 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!