Merger Structure Rundown: Forward Triangular Merger

As Phil Jackson showed, triangles can be a very powerful tool for winning championships.  They are also the basis for two successful merger strategies.  Perhaps if Phil Jackson was not a coach, he would have been a successful M&A advisor.  In today’s update, we look at the Forward Triangular Merger.

A forward triangular merger involves the Purchasing company (the “Purchaser”) acquiring the Selling company (the “Seller”) through a subsidiary company (the “Subsidiary”) that is wholly owned by the Purchaser.  Post-acquisition the Seller disappears and the Subsidiary is all that remains.

Benefits

1. Tax – The Purchaser can use a combination of cash and stock (up to 50%) to acquire the Seller through the Subsidiary.  This can provide tax benefits for the Purchaser.
2. Liability – Because the Seller is acquired through a subsidiary, there is a liability shield in place to provide protection for the Purchaser from pre-acquisition issues of the Seller.

Drawbacks

1. Third Party Consents – The Purchaser usually has to get third-party consents for any contracts that the Seller had in place.

Below are some good overviews of the different transaction structures (repeat from last week):

• M&A 101 – The difference between mergers and acquisitions
• Making Mergers, Acquisitions and Other Business Combinations Work
• Acquisition Structure – General Framework

Here are some other items of interest:

• Economic Review: March 2023 – Silvercrest (silvercrestgroup.com); Thanks to Sean O’Dowd for sharing
• NFIB – Higher Minimum Wage, More Paid Leave, Lower Taxes: Key Issues in State Legislatures Across the Country
• NFIB + PACB Annual Economic Forum – March 6; 10am-12pm
• Smart Business Dealmakers Conference – April 26, 2023 (thanks to Murphy McCormack Capital Advisors for sharing)

Additional Merger Structure Rundowns

This blog post is part of a series on different types of merger structures. You can find the other structure rundowns at the links below:

• Merger Structure Rundown: Forward (Direct) Merger
• Merger Structure Rundown: Reverse Triangular Strategy
• Merger Structure Rundown: 338 Elections

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.