2. Risk mitigation
Once the deal is completed, it’s time to start remediating any tax or legal risks highlighted by the due diligence process, such as poor documentation in relation to transfer pricing, or failure to withhold taxes on interest payments. If you don’t do anything about these risks, you could find they increase over the period you own the asset, meaning you might have to accept a price reduction on exit.
Sometimes the process of risk mitigation may present you with an opportunity to get to a better answer to create value. For example, let’s say that at the time of due diligence, a national tax authority had raised an enquiry in relation to your asset – an enquiry that is still ongoing. You may find that by meeting the tax authority, you come out with a better result compared with the exposure you anticipated during due diligence because you took a prudent approach to the potential worst-case outcome.
3. Compliance with post-deal clauses
It is common for sale and purchase agreements to contain post-deal clauses, which may remain in force for several years. Often these clauses will provide you with protection – for example, in the event that your newly acquired asset becomes the subject of a lawsuit. But there can also be clauses relating to group tax relief. So, if your asset has been carved out from a bigger group, these clauses may relate to the treatment of losses as they are shared between ownership periods. It is important to be aware of what these tax clauses contain and to bear them in mind when filing tax returns.
4. Intellectual property
Following the deal, you have an opportunity to rethink your intellectual property (IP) strategy, both with regard to legal protection and tax optimization. To do this, you will need to identify what IP you have – within both the existing organizational structure and in the newly acquired business – and where it is located. Consider whether the acquisition could enable you to group all your IP in one location and find new ways to develop IP for the combined group.
5. Legal entity simplification
When you pursue a deal, it is possible the target may include legal entities that you won’t necessarily want to retain in the future. Post deal, you may therefore look to remove any obsolete or superfluous entities, either to achieve cost savings or to more effectively manage your risks so you achieve a smoother exit when the time comes. It can be a good idea to seek professional advice to ensure that you don’t inadvertently take action that leads to issues later down the line.
A ‘brain drain’ has the potential to seriously undermine the success of a deal. Dealmakers have historically used equity incentives as a way to motivate and retain the key executives within an acquired business. Yet it is also important to bring along the team who work just outside of senior management, as well as other key members of the workforce with particular skills and expertise. Here the priority is to develop an incentive package that motivates them, and aligns them to your strategic goals for the business, without excessively diluting the equity pool. The best incentives may not necessarily be cash, but could take the form of flexible benefits or a long-term incentive plan.
Another consideration is making sure you have the right people and back office set-up. By automating certain repetitive and low-value activities, or outsourcing them to external advisers, you will free up your in-house staff to focus on value creation.