Why the chief tax officer is essential to M&A success
Optimize deal value by getting the CTO involved from Day 1 to navigate the increasingly complex tax considerations.
Planning mergers and acquisitions can often feel like the corporate version of a high-wire act: Get even one detail wrong, and the deal’s hoped-for value realization can take a tumble. And there’s no safety net that allows for a do-over.
Adding to the high-stakes challenge: The copious details of M&A transactions are also getting more and more complex, and that’s especially true when it comes to tax concerns—an essential part of every deal, but one that is often overlooked or parked at the end of the transaction. Tax rules—local, federal, global—continue to change on a regular basis, including the introduction of new technologies and evolving laws and regulations.
Given today’s volatile, always-changing business climate, leaving the tax team to “wrap up the details” at the end of a transaction is just not sustainable. In our work with clients, we’ve learned that giving the chief tax officer (CTO) a seat at the table throughout the deal process is an essential component of a successful transaction, as we outline in our new report, “Tax in today’s complex M&A market.”
Putting tax considerations first
M&A transactions are traditionally led by the chief financial officer (CFO), with good reason. But in our engagement with clients on global M&A activity, having both the CFO and the CTO involved from the start, regularly communicating and seeing all of the same data, is critical.
This team-based approach from Day 1 can streamline the execution process itself, but it can also improve efficiencies post transaction and increase actual value realization. There are tax implications at each defined deal phase, and especially when transactions involve multiple state and international borders. Here are some examples:
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Above all, buyers should be cognizant of tax issues early so they can identify and take care of any risks that might cross their path. And the potential issues and risks are getting more complicated for many companies, according to our 2022 survey of CTOs, with serious ramifications for M&A activity. Indeed, two-thirds of the experts we surveyed said tax issues related to M&A are growing in number and complexity, but just half of the CTOs felt like they had good connectivity to their company’s M&A activity.
Planning for multinational transactions
Cross-border implications are also a growing area of focus. In fact, just about all M&A transactions today involve at least some amount of business processes in other countries. And that brings a whole slew of concerns, ranging from complications caused by differences in national tax administration to the potential impact of tax reform on transaction markets.
Tax leaders can facilitate cooperation by engaging with external tax advisers from around the world to help develop strategies to ensure that the final deal outcome is legally feasible.
And in most M&A deals, disruptions are unavoidable. For example, the European Union is planning on implementing environmental levies and decarbonization initiatives, which may affect transactions involving EU players. But if tax experts can get a head start on planning, model the impact of any changes, and create a roadmap to navigate them, stakeholders can still expect positive outcomes.
The U.S. administration has proposed sweeping changes to tax policy, that could have profound implications for transactions markets in North America and globally.
KPMG, “Future of M&A: Rebounding markets focus on value creation and tax reform."
Preparing for the future
Regardless of economic conditions, companies will continue to look to M&A opportunities as one proven way to drive growth. Indeed, even amid recession fears, inflation, and spiking interest rates, more than half of the CEOs in our recent survey said they were likely to pursue an acquisition to spur growth.
But a big key to realizing that growth and the full potential of any deal is avoiding any tax-related “gotchas” and staying ahead of any changes to the tax environment. Leveraging the expertise of CTOs and their teams is essential.
Here are three important ways they can help smooth out the deal process:
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CFOs who want to prioritize successful transactions know that aligning tax considerations with business operations and investing in strong CTOs will contribute to positive outcomes. By putting their trust in CTOs, companies and stakeholders can drive value and profits, uncover opportunities, and stay ahead of any disruptions they might encounter.
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