Mergers, Acquisitions and Sales of Closely Held Businesses: Advanced Case Analysis

• Chapter 0 - Overview
  • Course Goal
  • Introduction
  • Why CPAs Need to Understand the Transaction Environment
  • Organization
• Chapter 1 - Introduction: Case Study - XYZ Company, Inc
  • Learning Objectives
  • Introduction
  • XYZ Company, Inc. (the "Company," or "XYZ")
  • Background Information - Case Study Method
    • Overview of Operations
    • Ownership and Senior Management
    • Assumed Effective Tax Rates
    • Affiliated Entities - Real Estate Company and Communications Company
    • Products and Services
    • Financial Structure
    • Historical Financial Statements - Income Statements for years 20X1, 20X2 and 20X3
    • Forecasted Financial Statements - Income Statements for Five Years
    • Historical Financial Statement - Balance Sheet for Year 20X3
  • Overall Observations on XYZ Company, Inc.
  • Summary
• Chapter 2 - Transaction Valuation Fundamentals
  • Learning Objectives
  • Introduction
  • Purpose of the Valuation
  • Determining Transaction Price
  • "Price" and "Terms" Briefly Examined
  • Standard of Value for Transactions
    • Fair Market Value ("FMV")
    • Investment Value
    • Intrinsic or Fundamental Value
    • Fair Value
    • "Emotional Value" - What a Buyer and Seller Perceive
    • Types of Buyers and Sellers
  • Three Broad Approaches to Determining Value
  • Attributes of Ownership - Control Position and Minority Position
    • Control Position (Enterprise Value)
    • Minority Position and Minority Position Valuation
  • Liquidity Issues - Lack of Marketability
    • An Issue with FMV
    • Empirical Data of Lack of Marketability Discount
  • Additional Adjustments to Valuation
  • Three Valuation Approaches: Income, Market, and Asset
    • 1. Income Approach to Valuation
    • 2. Market Approach to Valuation
    • 3. Asset Approach to Valuation
  • Transaction Terms Revisited
  • Application of Computed Values
    • Fair Market Value (FMV)
    • Investment Value
  • Summary
• Chapter 3 - Transaction Structure: "The Art of the Deal"
  • Learning Objectives
  • Introduction
  • A Negotiated Environment
    • Seller and Buyer Perspectives - Overview
    • Family Members
    • Business Partners
    • Third Parties
  • Seller's Perspective
    • Deciding to Sell - Objectives and Goals
    • Preparing for Transition - "Get the House in Order"
    • Review of Legal Issues
    • Selecting the Seller's Advisory Team
    • Developing a Marketing Strategy - Likely "Buyers"
    • Preparation of an Offering Memorandum
    • Seller's Due Diligence
  • Buyer's Perspective
    • Deciding to Acquire - Objectives and Goals
    • Identify Synergies and Economies of an Acquisition
    • Selecting the Buyer's Advisory Team
    • Legal Issues and Insights
    • Buyer's Due Diligence
    • Financing Overview
    • Regulatory Overview
    • Securities and Labor Laws
  • Transaction Terms Revisited
    • Terms Have Substantial Impact on Total Consideration
    • All Cash Deals Unlikely
    • Most Common Types of Terms
  • Summary
• Chapter 4 - Sale or Purchase of Assets
  • Learning Objectives
  • Introduction
  • Deal Structure
    • Goals of Buyer and Seller
    • Strategic Tax and Transaction Considerations
  • Example - Asset-Based Transaction Initial Diagram and Structure of the Deal
    • Illustrated Asset-Based Transaction
    • Standard of Value - Investment Value
    • Major Steps in the Asset Transaction
  • Additional Transaction Considerations
    • Terms Considered
    • Transaction Costs
  • Summary of Strategic Issues
    • Strategies - Buyer's View
    • Strategies - Seller's View
  • Summary
• Chapter 5 - Sale or Purchase of Stock
  • Learning Objectives
  • Introduction
  • Deal Structure
    • Goals of the Buyer and Seller
    • Strategic Tax and Transaction Considerations
  • Example - Stock-Based Transaction Structure
    • Illustrated Stock-Based Transaction
    • Standard of Value - Investment Value
    • Major Steps in the Stock Transaction
  • Taxable Stock Purchase Treated as an Asset Purchase (§338)
    • IRC Section 338 Election
    • IRC Section 338(h)(10) Alternative Election
  • Additional Transaction Considerations
    • Terms Considered
    • Transaction Costs
  • Summary of Strategic Issues
    • Strategies - Buyer's View
    • Strategies - Seller's View
  • Summary
• Chapter 6 - Specialty Transaction: Employee Stock Ownership Plan and Trust ("ESOP")
  • Learning Objectives
  • Introduction
  • Traditional Uses of an ESOP
    • Provide Liquidity and Diversification for Shareholders
    • Provide a Means of Capital Formation
    • Finance Corporate Acquisitions
    • An Incentive to Increase Employee Productivity and Retain Personnel
    • Provide a Succession Plan
    • Provide Liquidity in Divorce Situations
    • Provide Negotiating Leverage for Any Proposed Transaction
    • Summary of Traditional ESOP Uses
  • Basic Features of ESOPs
    • Operating Considerations of an ESOP
  • Tax Incentives Related to ESOPs
    • Major C Corporation and S Corporation Attributes for ESOP Purposes
    • Major C Corporation Attributes
    • Major S Corporation Attributes
    • ESOP Contributions Tax Deductible within Statutory Limits
    • Contributions to an ESOP Based on Dividends (C Corporation)
    • Contributions to an ESOP Based on Distributions (S Corporation)
    • IRC Section 1042 Tax-Free Rollover (C Corporation)
    • Nontaxable Income Related to ESOP Stock (S Corporation)
    • Assets in ESOP Remain Untaxed until Retirement
  • Examples - Sales of Stock to an ESOP Assuming Either a "C" or an "S" Corporation
    • Illustrated ESOP Transactions Overview
    • Standard of Value - Fair Market Value (FMV)
  • Example - Sale of "C" Corporation Stock to a Leveraged ESOP with IRC Section 1042 Rollover
    • Significant Factors for This Example
    • Illustrated Sale and Major Steps of “Câ€? Corporation Stock to a Leveraged ESOP with IRC Section1042 Rollover
    • IRC Section 1042 Restrictions
    • Strategic Summary for the Sale of C Corporation Stock to a Leveraged ESOP with IRC Section 1042 Rollover
  • Example - Sale of C Corporation Stock to a Leveraged ESOP with IRC Section 1042 Rollover, Multiple Classes of Stock, and Control
    • Significant Factors for This Example
    • Issue: Receiving a Prorated Control Position Price
    • Issue: Creating a Second Class of Stock
    • Illustrated Sale and Major Steps of C Corporation Stock to a Leveraged ESOP with IRC Section 1042 Rollover, Multiple Classes of Stock, and Control
    • IRC Section 1042 Restrictions
    • Control Position Transaction
    • Likely S Corporation Election
    • Strategic Summary for the Sale of C Corporation Stock to a Leveraged ESOP with IRC Section 1042 Rollover, Multiple Classes of Stock, and Control
  • Example - Sale of S Corporation Stock to Pre-funded ESOP with No Bank Debt
    • Significant Factors for This Example
    • Illustrated Sale and Major Steps of S Corporation Sale to Pre-funded ESOP with No Bank Debt
    • Strategic Summary for Sale of S Corporation Stock to Pre-funded ESOP with No Bank Debt
  • Example - Convert to C Corporation First, Sell Stock to Leveraged ESOP with IRC Section 1042 Rollover and Control
    • Significant Factors
    • Tax Planning Strategy
    • Illustrated Sale and Major Steps Converting to C Corporation First, Sell Stock to Leveraged ESOP with IRC Section 1042 Rollover and Control
    • IRC Section 1042 Restrictions
    • Control Position Transaction
    • S Corporation Election
    • Strategic Summary Converting to C Corporation First, Sell Stock to Leveraged ESOP with IRC Section 1042 Rollover and Control
  • Summary
• Chapter 7 - Specialty Transaction: Tax Preference Reorganizations
  • Learning Objectives
  • Introduction
  • Main Categories of Reorganizations
    • 1. Acquisitive Reorganizations Overview
    • 2. Divisive Reorganizations Overview
    • 3. Restructuring Reorganizations Overview
    • Benefits and Applications of Reorganizations
  • Regulatory and Case Law Requirements for Reorganizations
    • Business Purpose
    • Continuity of Business Enterprise
    • Step Transactions
    • Continuity of Interest
  • Acquisitive Reorganizations Illustrated
    • Standard of Value - Investment Value and Facts for the Example Reorganizations
  • Example - Type "A" Reorganization, Statutory Merger
    • Illustrated Type "A" Reorganization - Statutory Merger
    • Major Steps in the Type "A" Reorganization Merger
    • Strategic Summary - Type "A" Reorganization Merger
  • Example - Type "A" Reorganization, Statutory Consolidation
    • Illustrated Type "A" Reorganization - Statutory Consolidation
    • Major Steps in the Type "A" Reorganization Consolidation
    • Strategic Summary Type "A" Reorganization Consolidation
  • Example - Type "B" Reorganization, Stock for Stock
    • Illustrated Type "B" Reorganization, Stock for Stock
    • Major Steps in Type "B" Reorganization Stock for Stock
    • Strategic Summary - Type "B" Reorganization Stock for Stock
  • Example - Type "C" Reorganization, Stock for Assets
    • Illustrated Type "C" Reorganization, Stock for Assets
    • Major Steps in the Type "C" Reorganization Stock for Assets
    • Strategic Summary - Type "C" Reorganization Stock for Assets
    • Triangular Transactions - Mergers
  • Example - Type "A" Forward Triangular Merger
    • Illustrated Type "A" Forward Triangular Merger
    • Major Steps in the Type "A" Forward Triangular Merger
    • Strategic Summary - Type "A" Forward Triangular Merger
  • Example - Type "A" Reverse Triangular Merger
    • Illustrated Type "A" Reverse Triangular Merger
    • Major Steps in Type "A" Reverse Triangular Merger
    • Strategic Summary Type "A" Reverse Triangular Merger
  • Summary
• Chapter 8 - Specialty Transaction: The Industry "Roll-up"
  • Learning Objectives
  • Introduction
  • Roll-Up Industry Overview
    • Industry Roll-Up with Public Company Acquiring Closely Held Companies
    • Industry Roll-Up Involving Only Closely Held Companies
    • Rationale for Industry Roll-Ups Involving Public Companies
  • Example Roll-Up Structures - Public Companies
    • Standard of Value - Investment Value
  • Example - Roll-Up Involving Type "B" Reorganization Stock for Stock
    • Illustrated Industry Roll-Up Involving Type "B" Reorganization Stock for Stock
    • Major Steps in the Roll-Up Involving Type "B" Reorganization Stock for Stock
    • Strategic Summary for Roll-Up Type "B" Reorganization Stock for Stock
  • Example - Roll-Up Involving Taxable Stock Purchase
    • Illustrated Industry Roll-Up Involving Taxable Stock Purchase
    • Strategic Summary for Roll-Up Taxable Stock Purchase
  • Example Roll-Up Structures - Closely Held Companies
  • Example Roll-Up Involving Type "A" Stock for Stock Consolidation
    • Illustrated Industry Roll-Up Involving Type “Aâ€? Reorganization Stock for Stock with Closely Held Corporations
    • Standard of Value – Investment Value
    • Major Steps with Roll-Up Involving Type “Aâ€? Reorganization Stock for Stock with Closely Held Corporations
    • Strategic Summary Roll-Up Involving Type “Aâ€? Reorganization Stock for Stock with Closely Held Corporations
  • Common Transaction Considerations
  • Practical Considerations - Frequent IPO Failures
  • Concerns Regarding IPO Roll-Up Transactions
  • Roll-Up Transactions with No IPO Orientation
  • Roll-Up Transactions and Consolidations
  • Summary
• Chapter 9 - Specialty Transaction: Between Family Members
  • Learning Objectives
  • Introduction
  • Family Members Considered
  • Active and Inactive Family Members
  • Examples - Sales and Gifts of Stock between Related Parties
    • Standard of Value - Fair Market Value
  • Sale of Business Interests
  • Example - Sale of Stock for Cash
    • Illustrated Sale of Stock for Cash
    • Strategic Summary - Sale of Stock for Cash
  • Example - Sale of Stock Using Stock Bonus Plan
    • Illustrated Sale of Stock Using Stock Bonus Plan
    • Strategic Summary - Sale of Stock Using Stock Bonus Plan
  • Example - Sale of Stock Using Private Annuity
    • Illustrated Sale of Stock Using Private Annuity
    • Strategic Summary - Sale of Stock Using Private Annuity
  • Example Sale of Stock Using Self-Canceling Installment Note
    • Illustrated Sale of Stock with SCIN
    • Strategic Summary - Sale of Stock with SCIN
    • Gifts and Sales of Business Interests
  • Example - Gift of the Stock Using Donee Annual Exclusion
    • Illustrated Gifting Using Donee Annual Exclusion
    • Strategic Summary - Gifting Using Donee Annual Exclusion
  • Example - Combination Sale and Gift Using Annual Exclusion
    • Illustrated Sale and Gift Using Annual Exclusion
    • Strategic Summary - Sale and Gift Using Annual Exclusion
  • Example - Gift Involving Optimal Use of Unified Transfer Rate
    • Illustrated Use of Unified Transfer Credit
    • Illustrated Use of Spouses' Combined Unified Transfer Credit
    • Minority vs. Control Position Issues
    • Strategic Summary - Using Unified Transfer Credit
  • Example - Gift Involving a Family Limited Partnership ("FLP")
    • Underlying Theory for Creating FLPs
    • Illustrated Use of Gifting Units in a FLP
    • Strategic Tax Summary - Family Limited Partnerships
  • Summary
• Chapter 10 - Resources
  • Business Valuations
  • Business Valuation Organizations (Alphabetical Order)
  • Employee Stock Ownership Plans (ESOP)
  • ESOP Organizations
  • Business Transactions
  • Closely Held Businesses and Family Businesses
• Chapter 11 - Ethics Focus: Taxation
  • Ethics Overview
  • Recent Developments
  • Spotlight on Independence in Tax Services
  • Key Ethical Dilemmas and Judgment Calls
  • Addressing Ethical Dilemmas
  • Available Resources
• Chapter 12 - Latest Developments

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