2. Not managing tax risk continues to impact deal values
Companies increasingly see that tax contributes significantly to deal value. This was the area highlighted by most executives when considering which step they did not take but now feel they would have benefited from the most — almost twice the next highest area highlighted. It is clear that value is still being left on the table by not fully preparing for a divestment process, in terms of both mitigating and communicating tax risks. With shifts in the global tax landscape, tax risk is increasingly arising in areas that were historically well understood and quantifying such risks is becoming more complex. When action is left until late in a process, tax risks invariably lead to value being lost.
Deal value
61%say lack of preparation in dealing with tax risk was a cause of value erosion in their last divestment
3. The structure of deals is becoming more complex
The form of divestments is changing — only 7% of companies say their last divestment was a full enterprise sale, meaning more complex carve-outs of divisions, partial divestments and joint ventures. Tax is vital to realizing value in these intricate scenarios. Over a quarter of companies indicate that having an optimized structure was the most important step for enhancing value in their last divestment and nearly two-thirds of executives indicated that the lack of flexibility in the structure was seen as a cause of value erosion. The importance of this flexibility increases with the complexity of the deal. In fact, 45% of companies say their ability to achieve a higher sale through flexibility in deal structure has increased over the last 12 months.
Deal value
93%of companies say their last divestment was a carve-out, partial divestment or joint venture.
In turbulent times, demonstrating inherent tax value is critical. Sellers need to focus on tax at the outset, highlight tax upsides and point these out to potential buyers.
Top tax considerations
Nearly two-thirds of companies indicate that the lack of flexibility in sale structure was a leading cause of value erosion in their last divestment. To maintain flexibility, sellers should:
- Prepare for structural separation early in the process
- Allow sufficient time to make decisions based on preparatory work
- Resist the temptation to make decisions in isolation
- Build in time for divestment scenario planning
- Transaction Tax
Conduct exit workshops to identify potential buyers and look at the business through their eyes
Summary
The market sees tax as a huge value driver and this is not being fully exploited in many cases, leaving money on the table.
