Challenge

A business owner was moving forward with the sale of the business, and had a letter of intent from the buyer. However, the buyer changed the terms mid-way through the transaction, which resulted in adverse consequences to the seller. At the last minute, what was originally a stock transaction with a public company (buyer) offering to buy stock, was restructured to be an asset deal. The proposed revised deal had significant negative tax consequences to the seller. This was a time sensitive situation, as the seller needed to close the deal on time. It was imperative that all parties quickly collaborate and devise an alternate plan.

Solution

On very short notice the team at DiCicco, Gulman & Company (DGC) evaluated the company, the prior terms of the deal, and most importantly calculated the consequences of the change in terms. This change included a revised net after tax calculation of the proceeds going to the seller. DGC worked with the attorneys, brokers and the seller to design, evaluate and present a counter proposal that would still achieve the seller’s objectives for this transaction.

Result

After discussions were held on changes to the price and structure of the deal, the transaction closed on time with revised terms that were acceptable to both the seller and the buyer. A situation with negative tax consequences for the seller was averted. This transaction resulted in the seller being able to convert illiquid stock to cash for retirement, and he was confident that all viable options had been thoroughly evaluated and considered.

For additional information about this or related topics, contact David M. Sullivan, CPA at 781-937-5351 or dsullivan@dgccpa.com. David is a Partner at DGC and advises closely-held and family-owned businesses on a variety of matters including M&A strategies, tax strategies and succession planning.