Why Is Tax Knowledge Important for M&A?
So I was listening to a tax attorney the other day talking about his work, and he says that he routinely works with M&As and that his background in accounting has been really useful for him in his job.
Pardon my ignorance, but what do accounting, and especially taxes/tax law have to do with M&A?
When valuing a company you need to be extremely well versed in accounting and taxes to accurately make projections of a company's earning potential in the future based on its historical performance.
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When it comes to M&A taxes play a big part in deciding on transaction structure, value and consideration. Tax laws are intricate and there are only a few stellar tax/structuring guys on the street.
Many banks/bankers/companies will therefore hire tax lawyers to advise them.
If someone began their career in a tax field, where presumably he would get exposure to the tax aspect of M&A, would it be possible to lateral over to an M&A field or would the individual forever be branded as "just a tax guy?" I would appreciate your thoughts.
yes. that person would know all the hardest parts
new to the boards guys. Im a corporate lawyer and my take is that tax attorneys have always had good leg up in exit opportunities from law, including banking, pe and related fields. I would say that tax is "the" driving factor in the way a deal is structured. Granted there are many factors that go into it but tax is by far the biggest and will decide whether you do an asset or stock sale or, if you are able to do so, utilize a tax-free merger. Also, 338(h) elections when you use a stock deal.
In my old job we set up a number of PE funds for guys who were tax attorneys turned bankers.
when it comes to Valuation & M&A I believe accounting plays a very big role, i always hear the saying that I-bankers are in fact extremely good accountants lol, valuation involves reshuffling and re-organizing the financial statements to properly project their future stream of cashflow. Its key to know what to look at, what to adjust, and compare. Hence the ability to navigate through the financial statement is key.
I know that for a fact because couple of my buddies working in IB tells me that they do a lot of accounting work, and a lot of colleagues of them have accounting background. I was shunned from couple firms due to my horrible grade in financial accounting (No one else to blame but myself).
In terms of tax, its quite complicated, theres a WHOLE load of literature on capital structure of firms, firms get tax saving advantage when they issue debt, but you'll end up like Lehman if you have too much debt. So M&A folks probably study the structures of the firm hard to properly find the most tax saving advantage.
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