Tax advisory for M&A transactions has long been one of the indispensable services for businesses in identifying potential tax risks and ways to save on taxes. It is forecasted that M&A activities in Vietnam will regain momentum and may achieve a growth rate of 100% starting from early 2022, after the COVID-19 pandemic is brought under control. This is considered an opportune time for businesses to seize the opportunity for significant growth. Post-pandemic is the right time for companies to "restructure" after the "storm" has passed. To achieve a successful M&A deal, businesses need tax advisory from top experts.
Table of contents:
1. What is M&A?
M&A is an acronym for the combination of the words "Mergers" and "Acquisitions." It is a broad term that describes the process of integrating companies or assets through various financial transactions, including mergers, acquisitions, consolidations, takeovers, asset purchases, and management buyouts.
Mergers involve the consolidation of businesses of similar size, resulting in the creation of a new legal entity. All the assets, common interests, rights, or obligations of the merged or acquired business become the property of the merged entity.
Acquisitions, on the other hand, involve a larger company purchasing smaller and weaker businesses, and the acquired businesses retain their legal status as separate entities. The acquiring company gains legal ownership and control over the acquired business.
2. Forms of M&A
Horizontal
Horizontal mergers occur between two companies operating in similar industries, and they may be direct competitors or not.
One of the most prominent examples of horizontal M&A is the merger of Facebook, WhatsApp, Instagram, and Messenger. These were all independent social networking platforms developed by different companies at different times. These platforms merged into a larger social media company, Facebook Inc., owned by Mark Zuckerberg. One of the reasons for the merger with WhatsApp was to develop and implement end-to-end encryption technology to protect user privacy. While the websites and apps remain separate, users can freely interact across these applications on a single network. Additionally, when Facebook reached a certain maturity, mergers were a strategic move to drive further growth.
Vertical
Vertical integration occurs between a company and its suppliers or customers within the company's supply chain. The company aims to expand either upstream or downstream along its supply chain, thereby strengthening its position in the industry.
The merger and acquisition deal between Walt Disney and Pixar is a famous example of vertical M&A. Walt Disney acquired Pixar Animation Studios for $7.4 billion in 2006. Pixar was a creatively driven animation studio with a talented workforce, while Walt Disney was a mass media and entertainment company. This merger brought significant success and was a strategic move for Walt Disney.
Conglomerate Merger
This is a form of acquisition and merger that creates conglomerates. Conglomerate mergers occur between companies serving the same customer base in a specific industry, but they do not offer the same products and services.
A well-known example of a combined merger is the deal between Berkshire Hathaway and Heinz in 2013. This acquisition paved the way for Heinz to merge with Kraft, forming Kraft Heinz, a giant in the global food industry.
3. The role of a tax advisor in M&A transactions
A skilled tax consultant with ample experience can make a significant contribution to helping businesses save on taxes. In practice, there have been tax consultants for M&A deals who have helped businesses save up to 20% on taxes – a substantial amount for any business.
Tax consultants analyze tax-related issues concerning your business, the acquiring company, and other parties involved in the M&A transaction to assess overall feasibility and post-restructuring cash flows. Additionally, the tax structuring goals of both the seller and the buyer in the deal are crucial factors. These objectives can change significantly depending on the restructuring and post-merger integration.
Tax due diligence also plays a critical role in identifying potential tax risks in the target company. Tax consultants for M&A deals aim to address and mitigate potential tax risks with the primary goal of putting the business's interests first. When developing a tax due diligence process, the analysis goes beyond simply reviewing tax returns. Businesses need to comprehensively analyze the tax attributes of the company, as well as determine the tax status, business flows, organizational ownership, location, and industry.
Tax consultants for M&A deals evaluate the tax components of the acquisition, structure the acquisition to optimize cash flows, prepare for business integration, conduct pre or post-sale due diligence, and ensure compliance with tax requirements.
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4. RSM Vietnam – Chosen Tax Advisor for M&A transactions
We believe that protecting businesses from tax liabilities not only benefits the businesses themselves but also improves the investment environment and reduces negative aspects associated with tax authorities, especially in high-value M&A transactions. We provide support to ensure that businesses are protected throughout the tax declaration, payment, and refund process, rather than waiting until they are imposed with unexpected tax issues.
RSM Vietnam is recognized as one of the "Prominent M&A Advisory Organizations" at the M&A Vietnam Forum 2019 - 2020, held in Ho Chi Minh City on November 24, 2020. Our experts at RSM Vietnam contribute to the success of your M&A deal.
Our services includes:
Support for Buying, Selling, and Merging
Enterprise Valuation
Financial, Tax, Legal, and Operational Due Diligence
Buyer and Seller Support Post-Merger Integration Consulting
Business Restructuring
Contract Negotiation Support for Business Sales
For RSM Vietnam's business advisory services, we always focus on enhancing shared values and helping clients to be well-prepared for any transaction. This preparation serves as the foundation for decision-making and maximizing profit potential. This is why the experienced consultants at RSM Vietnam conduct thorough analyses and examine assumptions regarding finance, operations, and strategy to help clients identify opportunities and potential risks during the Covid-19 period. Our experts are always ready to assist businesses in establishing a deal structure to ensure the success of both business operations and the culture and strategy while maximizing the success of the investment deal by promoting effective tax strategies.
RSM Vietnam provides flexible and professional business advisory services tailored to the needs of businesses in buying, selling, and merging transactions, especially during the Covid-19 period.
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