Focus on Private Equity -- Issue 1, June 2012


In This Issue:

Key Tax Considerations for Private Equity Acquisitions and Key Employee Benefit Considerations for Private Equity Acquisitions.

Excerpt from Key Tax Considerations for Private Equity Acquisitions

Careful attention to tax considerations during the course of acquisition transactions can help secure opportunities to protect and enhance value for private equity funds. While there are numerous tax issues to consider in any transaction, below are some key considerations.

Identifying Structuring Opportunities Through Tax Elections

- 338(h)(10) Elections for Qualified Targets -

An election under Section 338(h)(10) of the Internal Revenue Code allows a corporate buyer to acquire stock while realizing the tax benefits of an asset purchase if the target is (i) a member of a consolidated group (or a non-consolidated selling affiliate) or (ii) an S corporation, and the private equity fund’s corporate buyer acquires a minimum percentage of the target’s stock by vote and value (after excluding any non-voting, non-convertible preferred stock) within a defined acquisition period. However, in certain circumstances a Section 338(h)(10) election may cause the seller to incur additional taxes due to the difference between the inside and outside bases in its shares. As a result, to secure cooperation from the seller, it is important for private equity funds and their counsel to identify such opportunities early in a transaction—often at the letter of intent phase—to secure the benefits of a 338(h)(10) election without having to agree to concessions later in the transaction.

Please see full issue below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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