Tax strategies to increase divestment speed and value

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Divestments are at the heart of companies’ portfolio optimization and growth strategies. Structural tax efficiencies may drive your decision to divest or not, and they can significantly impact sale value.

Read about what you need to keep in mind regarding your tax strategy, from portfolio review through execution.

  • Data drives decision making

    Fifty-five percent of sellers need better data and analytics tools, including accurate tax assumptions, to make good portfolio decisions. In particular, they must understand historical tax risks and exposures, and how the tax costs of a divestment could be mitigated.

    Tax considerations:

    1. What are tax costs on divestment vs. hold scenarios?

    2. How might post-tax return profiles differ between sellers and buyers?

    3. Can tax assets can be preserved or accessed on divestments?

    4. Are transfer pricing policies correctly applied in data modelling?

    5. How could tax law changes impact financial modelling?

    6. How could tax law changes impact future post-tax cash flow and earnings?

    EY - Data drives decision making

    Source: EY’s 2015 Global Corporate Divestment Study

  • Value creation lessons from PE

    Private equity is disciplined about value creation, including planning, measuring and rewarding achievement for operational improvements. Value creation starts years in advance of exit, through sustainable performance and efficient structures.

    Tax considerations:

    1. Does maximizing sales proceeds mean surrendering post-tax value?

    2. Can tax controversies be settled in advance of sale or extracted from the deal perimeter?

    3. Could the business operating model be improved?

    4. What taxes may arise from legal restructuring?

    5. What tax charges may arise from extracting working capital?

    EY - Value creation lessons from PE

    Source: EY’s 2015 Global Corporate Divestment Study

  • Improving divestment execution

    Efficient divestment execution requires tax to coordinate effectively with other critical work streams. Defining the transaction perimeter early – analyzing value from seller and buyer perspectives – is critical.

    Tax considerations:

    1. Could you enhance value by adjusting the transaction perimeter?

    2. Do different carve-out structures appeal to different buyers?

    3. Can you clearly articulate historical tax risks and potential future tax efficiencies and manage them within the transaction structure?

    EY - Improving divestment execution

    Source: EY’s 2015 Global Corporate Divestment Study

  • Speed vs. value

    When companies focus solely on speed or value goals, they often take shortcuts that are detrimental to both. Understanding tax factors that enhance value, and how to access them, are critical for executives to assess speed vs. value as they plan a divestment.

    Tax considerations:

    1. Are M&A and tax functions as connected as they need to be?

    2. Should you restructure in order to facilitate a potential sale?

    3. Can qualification periods for tax incentives be met?

    4. Is adequate time available to execute pre-sale restructuring?

    EY - Speed vs. value

    Source: EY’s 2015 Global Corporate Divestment Study