M&A deal structures and the value of NOLs

Craig Eaton
June 17, 2009 — 1,658 views  
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Interesting focus lately on a couple of areas that relate to M&A in this environment; companies are getting more creative about deals and thereby run the risk of triggering tax issues that weren't as prevalent in the bull market days. We wrote about this last week in TheDeal.com (check out the article called "Dealing with the Code"), and it seems to be top of mind in other areas as well.

Most recognized is the use of net operating losses (NOLs) to offset taxes and make deals more attractive; the inherent value of NOLs is earning some attention as companies take major steps to protect them.  This is outlined in TheDeal.com article but also highlighted in a recent piece from CFO Magazine about GM's bankruptcy plans.  As the magazine writes,

the IRS substantially curbs the amount of NOLs that can be used when there's a change of ownership. In that way, the government prevents corporations from buying loss companies just to latch on to NOLs for their accompanying tax benefits...[but] bailout plans can't limit the taxable income of companies benefiting from them.

The historically difficult environment is giving rise to exceptions like this and to opportunities for acquiring companies to get creative with the way they structure deals.  Dealflow might be slow, but it's still moving and knowing how tax issues can help or hurt transactions will be key as we close in on the latter half of 2009.

Craig Eaton