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If You Don’t Buy It, M&A Outlook is Still Solid

Last week, CVS announced that it would be buying OakStreet Health for $10B, which comes on the heels of buying Signify Health in the Fall for $8B.  Even with rates continuing to climb, the M&A market remains solid.  Reasons range from consolidating market share, catching up on delayed deals from 2022, taking advantage of existing financing availability that’s at pre-Fed rate increase levels and valuations that are getting back to more realistic levels.  If you don’t buy it (pun intended), take a look at what some of the major deal advisors say:

So, what does that mean for you as a business owner or leader?  To start, I thought it would be good to revisit the basics of an acquisition and then provide some strategies that you might consider.    For the next few weeks, we will cover the core concepts that may spur some thoughts on the M&A landscape.

Asset Transaction
Most of the transactions in the privately held business sector are asset transactions.  The Buyer purchases just the assets of the Seller’s business.  From a tax perspective, the Buyer will typically get a step up in basis on the value of the assets purchased, which helps with depreciation and amortization expense.  The Seller, on the other hand, would be subject to both capital gains and ordinary income rates, depending on the mix of hard assets and intangible assets.

Stock Transaction
Stock transactions still do occur in the privately held business sector.  Typically, these are done if the Seller has certain contracts with their customers that would have to be rebid in the event of an asset sale (i.e., the Selling entity must remain in existence post transaction).  The Seller may also have some tax attributes which make it attractive (e.g. tax loss carry-forwards).  From a tax standpoint, these are typically more advantageous for the Seller because the stock is subject to capital gains rates.  The Buyer on the other hand typically does not get as much of an advantage because they are only buying the stock and the asset values of the Seller remain on the books as normal (i.e., no step up in basis).

Merger
In a merger, two separate entities merge together (or merge their assets together) and form a new entity.  From a tax perspective, mergers present a lot of different scenarios.  I could write about all them in this update, but I think they are a good topics for the coming updates.

If you are saying to yourself:  Asset Sale, Stock Sale, Merger…..my head hurts!  Don’t worry, your business professional advisors (business accountants, business attorneys, business financial advisors, etc…..and yes, I meant to add business in front of each profession) can help with the process.

A few other items of interest this week:

As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com), Brad Leber (bleber@mpl-law.com) or anyone in our office with questions or comments.  

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.  

The Employee Retention/Recruitment Merry Go Round

2023 is well underway and it appears the next downturn is not as imminent or large as the economic prognosticators were predicting.  Instead of looking at ways to right size their organization for a slow-down, many are back on the employee retention & recruitment merry go round.

More times than not, the root cause of a person leaving a job is not the constant desire to make more money.  It’s because they are not happy in their current role.  On the flipside, when someone is looking at whether to join a new organization, they consider not just the pay, but also the company culture.  So, what can you as a business leader do?

When is the last time you have thought about your company’s culture and tried to define it?  If your staff were asked the same question, would they answer in a similar manner?  Company culture is just as, if not more, important than the pay.  Below are some articles on company culture that I think are worth a read.

In each of these articles, I think you will see that pay is not really mentioned.  While it is still a very important variable, it’s not the sole reason someone is staying in a role with your firm.  If it is, what do you think they will do when a call comes in from a competitor offering more money.  Company culture can be one of the greatest employee retention and recruitment tools.

“There’s no magic formula for great company culture. The key is just to treat your staff how you would like to be treated.” – Richard Branson

A few other items of interest this week:

As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com), Brad Leber (bleber@mpl-law.com) or anyone in our office with questions or comments.  

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.  

Nah, it will never happen – Oh ya?

9/11, Enron, Madoff, FTX and Covid are just a few examples of events that I bet were not fully planned for by the business community.  What happens to your organization if one of these events happens, if the leader of your business passes away or a key facility is destroyed by a natural disaster or a fire?    Unfortunately, I read stories about these types of events on a regular basis. 

As a business leader, do you have a business continuity plan in place?  Of course, you can come up with “what if” scenarios.  However, what do you do when an unthinkable tragedy occurs?  Below are some helpful questions to consider if you don’t have a business continuity plan in place:

  1. Who will write up the business continuity plan? 
  2. What will be the emergency scenarios you want to address?
  3. What will be your business responses to those scenarios and who is in charge of them? 
  4. Who is the backup to that responsible person?
  5. How will you test your business continuity plan?
  6. How will you adjust the business continuity plan for things you missed?
  7. How often will you revisit the business continuity plan and update it?

The key thing to remember is that something is going to happen that you do not expect.  The more familiar your team is with the business continuity plan, the faster your business will be able to recover.  You may want to engage your professional business advisors in this process as well. 

Below are some other helpful articles:

Other items of interest:

As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com), Brad Leber (bleber@mpl-law.com) or anyone in our office with questions or comments.   

Please see all of our prior updates at this link or if you would like to be added to our email list, please click here.