NOLs within M&A
Question: What's a Section 338(h)(10) election and why might a company want to use it in an M&A deal?
Answer: Even though the seller still gets taxed twice, buyers will often pay more in a 338(h)(10) deal because of the tax-savings potential. It's particularly helpful for:
1. Sellers with high NOL balances (more tax-savings for the buyer because this NOL balance will be written down completely - and so more of the excess purchase price can be allocated to asset write-ups).
Could someone explain why the NOL balance being written down would be good for the buyer? Wouldn't they want more NOLs through the merger, so that they can have more taxable income offset in the future? Or, is this writedown good because they can now write-up more of the assets in the deal, so the NOLs are actually "applicable" to them and not just the old balance from the seller?
In general, would love an explanation on the answer. Thanks!
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