Give tax a seat at the table when planning for value creation

In the past, when it came to a typical merger or acquisition (M&A), tax was often left standing at the end of the queue. Priority was given to other things like due diligence and commercial structuring – tax in contrast was perceived as something that could be fixed in the later stages.

This line of thinking was enabled by the fact that tax regulations were more straightforward. But of course, much has changed since then.

Tax issues can become particularly complicated for organisations today, and not just in terms of regulatory overhaul; there’s plenty of oversight devoted to organisations when it comes to tax strategy and tax planning, and little sympathy.

A business move that works for the market may please shareholders, but it can come with a significant reputational risk as scrutiny increases.

So with organisations having to contend with not just the significant overhaul to tax regulation, but also the potential effect on a business’s standing that comes with today’s climate of intense scrutiny, it should be a given that tax should now be claiming a seat at the table in the pre-deal phase.

And yet, this is still rarely the case; tax can still be an afterthought in conventional M&A value planning. But the truth is that, by ignoring the issue of tax, businesses can seriously hinder deal value creation on both the structural and operational side, and efficiencies that were originally envisioned during the pre-deal phase can be slowly eroded.

The results of our recent Creating value beyond the deal M&A report confirm this view: 89% of the 600 executives we interviewed said that – when divesting – they believe they could do more to optimise the asset for sale from a taxation and legal perspective.

Tax should be brought to the table in the pre-deal phase, not just when the time comes to execute. Tax should be part of the nitty-gritty stages of planning where we consider how to query, where to query, understand what the risks are and detect inconsistencies.

In considering value creation in terms of how a proposition has been constructed, a significant element of this is of course tax. As such, the first step of any value creation in a proposition should entail consultation with a tax practitioner to scrutinise the acquisition from all different aspects.

This needs to be aligned upfront in the origination phase, not just at execution or post-deal. In essence, the traditional way of working needs to change.

Businesses’ acquirers must concentrate on more than just the commercial structure of the new business that they want to achieve; careful planning needs to be carried out around regulations, legalities, taxation and other issues that may not typically be discovered or considered early on in the planning process.

And, all of this pre-planning must form a key part of a comprehensive value creation plan.

The traditional model of value planning is no longer enough. Value creation plans today must be validated and stress-tested during the due diligence phase – and this includes a tax discussion in the elemental stages.

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