m&a and due diligence · • diligence findings • expansion of scope • any unusual or...

M&A AND DUE DILIGENCE

High Level Tax Conference Toronto 2016

B Nathaniel Collins, BDO USA29 September – 1 October 2016

High Level Tax Conference 2016 – M&A and due diligence

TODAY’S AGENDA

•Introductions and Overview of Initiative

•Request for Proposal Guidance

•Terminology Guidance

•Execution Guidance

•Q&A

•Closing, Next Steps

Global Procedures for Crossborder Tax Due Diligence Engagements

M&A and due diligenceHigh Level Tax Conference 2016 –

REQUEST FOR PROPOSAL GUIDANCE TERMINOLOGY GUIDANCE

Nate Collins, CPA, MSTTax PartnerTransaction Advisory ServicesBDO USA, LLPUNITED STATES

Koos van der KempPartnerTax Transaction ServicesBDO Investigations B.V.THE NETHERLANDS

Introduction to the TDD Request for Proposal Guide and the Terminology Guide


REQUEST FOR PROPOSAL GUIDANCE

Available on connect - see Tax | Tax Due Diligence | Tools

Benefits of RFP Guide

•Consistency normalization w/out overlooking local country market norms or customs

•Facilitates the use over more junior staff / checklist manifesto

•Risk and brand management

•Ultimate goal of serving the middle-market M&A space better than the competition

Introduction to the TDD Request for Proposal Guide


https://www.bdoconnect.com/tax/coes/TDD/Pages/default.aspx


Contents / Overview of Guide

•Lead firm vs. Member firm concept

•Lead firm•Identification of Member firm contact•Clear communication of opportunity / needs•Providing sufficient relevant information / context•Launching the project (immediate first steps)

•Member firm•Scoping•Communication, etc.




Selected specific points, emphasis added

•Who is going to do what and by when, be reasonable and provide context

•Encourage/raising country specific issues

•Lead firm to provide templates where appropriate

•In most cases, more information/context is better for tailoring and winning work

•TDD work plan can vary widely from one deal to the next (e.g., asset deal vs. Stock deal); value added observations usually originate from knowledge of deal specifics



DUE DILIGENCE TERMINOLOGY

Goals:• Speak the same language• More efficiency during due diligence process• Guidance in client/prospect discussions to determine

scope of a project

• List is not extensive• Based on international terminology (local interpretation

may differ)


M&A and due diligenceHigh Level Tax Conference 2016 -

EXECUTION GUIDANCE

Martina Elisabeth Luetticken Alistair KirkbrightLawyer, Certified Tax Consultant Director M&A Tax and Legal Services Corporate and M&A Tax ServicesBDO AG BDO LLPGERMANY UNITED KINGDOM

Effective TDD and an Introduction to the TDD Execution Guide

M&A and due diligenceHigh Level Tax Conference 2016 -

DURING WORK

Member firm Execution Guide


Guidance on • how to execute on a tax DD opportunity and• how to report on finding sin a practical and business-like manner

Details:• Timely Communication / Flagging• Global Cooperation• Reporting• Managing Scope and Budget

Key document


DURING WORK

General Communication

• Contact of lead firm for further information or guidance at any time during the process

• Special challenges in international DD projects

• Selective use of email communication

Timely communication / Flagging


DURING WORK

Red Flagsshould always be raised ASAP, e.g.

• Process issues• Diligence findings• Expansion of scope• Any unusual or particular tax issues

–triggered by such a transaction and/or –that are otherwise relevant to your local territory

• Additional services

Timely communication / Flagging


DURING WORK

Collaboration on global issues, e.g. transfer pricing or permanent establishments

• Avoid the duplication of efforts by coordinating with lead firm the division of responsibility

• How should group issues be addressed?–Different perspectives –Perspective of one jurisdiction -General comments

Global Cooperation


DURING WORK

Be practical!

• Evaluation of risk levels and quantification of risks• Seek to provide findings/reporting to lead firm ahead of client/deal deadline• Commercial focus of findings

– Materiality limit– Client needs to understand the issue, but not technical details to make a commercial

decision• Provide information as to how to handle that risk

– Warranties and indemnities– Reduction of purchase price– Escrow– Structuring ideas

Reporting


DURING WORK

See above: Red Flags

Avoid expansion of scope

Budget• Be mindful of costs incurred versus budget• Any factors that are outside your control that could be causing an unexpected increase in

costs that was not anticipated at the start of the assignment?– Poor flow of information– Material tax issues that were not identifiable when scoping the work

• If necessary, provide the lead team with regular updates on costs incurred

Managing Scope and Budget


CHECK OF REPORT

Be clear• Do not use ambiguous language• Explain technical issues• Structure your report:

– scope of work– sources of information (documents reviewed)– section for different taxes– accounting section– different section for each company

A good report should ...

- M&A and due diligenceHigh Level Tax Conference 2016

CHECK OF REPORT

Be concise• Include an executive summary• Consider using tables to summarise information• Quality not quantity• Use abbreviations (and explain them!)

When reporting issues, answer the question “so what”? What do your findings tell you?• Is there a cash tax exposure?• Are losses reduced?• Will future tax be triggered?• Does the target give low priority to tax compliance?



CHECK OF REPORT

Demonstrate expertise• What is the tax authority’s views about the issue being raised?• Is it common practice for such an issue to arise?• Is this a developing area of tax law (grey area)?• Do you have any experience of the issue being raised?• Make recommendations / give your point of view

Consider materiality• Depends on size of deal• Many minor issues resulting in large exposure –tabular reporting?



CHECK OF REPORT

Content • Unclear messages• No quantification of risk or quantum• After reading the report the client does not know what to do –how to solve problems that

have been raised• Raise “access to information” issues that have not previously been discussed with client

– Discuss problems early with client so no surprises when client receives report– Give client enough time to use negotiation strength to get you what you need

• Raise unsolved problems without recommendations• Contain information / detail that is unnecessary

Indicators of a bad report


CHECK OF REPORT

Form • Spelling mistakes• Inconsistent use of company names / abbreviations• Sentences that do not make sense• Different currencies• Numbers that do not add up• Others?

Indicators of a bad report


Questions?


BIOGRAPHY

Nate Collins, CPA, MST

Tax Partner Transaction Advisory Services

E-mail: [email protected]

Direct: +415-490-3215

Mobile: +518-321-3395

Mr. Collins is a leading partner in BDO’s United States TAS Tax practice and has directed the buy-side/sell-side tax due diligence and related negotiations for a wide variety of transactions. As a fully dedicated M&A tax advisor, Nate has significant experience executing in both the domestic and multi-jurisdiction arenas, as well as supporting the M&A related special tax project needs for strategic buyers, financial investors, and acquisition targets.

PROFESSIONAL AFFILIATIONSAmerican Institute of Certified Public Accountants

EDUCATIONB.B.A. in Accounting, Loyola University ChicagoMS in Taxation, DePaul University, KellstadtGraduate School of Business

High Level Tax Conference 2016 – [Presentation title]

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