After the acquisition: 5 steps to manage the tax process

An integrated approach and a detailed plan are critical to accomplishing all the tax-related tasks that need to occur in the months after an M&A transaction closes. Such a transaction stretches internal resources and is incredibly disruptive to the companies involved, so it’s imperative to stay focused and map a timeline of what needs to happen to meet all deadlines.

Why preclose involvement helps The tax function’s involvement should begin during due diligence — the fact-finding time to ask questions related to integration and to plug in to be able to boost the benefits for your company. For example, who gets the benefit of transaction costs, whether investment banking fees, attorney fees, bonuses, stock option payouts, etc.? The transaction costs language can be detailed and pages long — telling you exactly when someone gets paid and how to calculate it — or a five-line paragraph that says little. Be involved early to avoid a scramble to interpret the language.

Any contractual deadlines also must be met — for example, if you commit to providing a tax return for review 30 days before it’s due and a net operating loss (NOL) carryback plan two months after closing, you must follow through. Being connected up front allows you to know the timing obligations and plan for meeting them.

100-day plan Your 100-day plan for managing the tax process should include five key steps — each with several components:
  1. Document deadlines for tax and financial reporting, and contractual deadlines.
  2. Prioritize tasks and projects.
  3. Assign responsibility.
  4. Budget time and costs.
  5. Organize workflow.

1. Document the deadlines Documenting the deadlines is your first step to prioritize tasks and assign responsibility — whether internally or with outside help — and should address appropriate time requirements and costs. You don’t want to overwhelm your team, but you also have to get things done on a limited budget. If you come into a transaction two weeks after it’s closed, for example, and explain why someone needs a Section 382 study no one was planning on, you are throwing a wrench into someone else’s budget.

You need to conduct a thorough read-through of the documents, including credit agreements and disclosures. Coordinate with the financial reporting team to document reporting deadlines. Document tax deadlines for filings, elections and payments. Tax is also one of the biggest areas for deal provisions such as indemnification provisions where certain items have to be filed to get indemnified from liability.
2. Prioritize tasks and projects Establish a critical path for projects and fill in all the blanks for each one. For example, if you are required to file an NOL carryback claim for the target within three months of closing, you have to finalize the stub period filing. To do that, you need to figure out transaction costs; and to do that, you must have allowed the time. If you need to have it done three to four months from today, you should have started last week, and you are already behind.

Set calendar-critical deadlines and work backward from them to establish the necessary timing.
3. Assign responsibilities Assess the time required to meet deadlines. Chances are you have not stacked up enough staff to account for all the acquisition needs, and you are piling work onto people who are already short on time. You need to know what you can outsource, what you can skip for now, who else in the organization can help and whether you need outside consultants. Budget your team’s time and skill sets and ascertain gaps, then be sure to plan for the gaps:
  • Get resources from within the organization.
  • Get temporary help.
  • Use outside consultants.
  • Increase staffing permanently.
  • Use technology options.

4. Budget your time and costs No one wants to go to the CFO with a significant budget expense that went overlooked. Know your outside consultant expenses, technology and licensing needs for software, and hiring and any other requirements, so those can be budgeted up front. Surprise costs may still arise, but they should not be overwhelming.
5. Manage the workflow This may seem obvious, but it is crucial for managing the workflow to keep tasks and costs from escalating. Designate a project manager from the tax team who is responsible for the process but also coordinates with the broader integration team across the organization. This person doesn’t have to be in charge of every project but does require the authority to press people to get things done. If you get behind, you need to flag that and deal with it quickly. The project manager should report to the tax director and integration team regularly, and also coordinate periodic (probably weekly) check-in calls or meetings. It’s great to have a plan, but essential for someone to make sure the team is working on that plan and hitting critical deadlines.
Moving on Once the initial integration wave has passed and you have accomplished crucial tasks associated with the first months after closing, you can move on to be effective as the combined company moves forward. A simple parent company with a few operations may have acquired a new company with 15 or 20 smaller entities within it, and the corporate structure is much more complex than it once was. The tax department must stay vibrant and involved as it handles the next steps of the integration process.

This article was developed from the Grant Thornton LLP webcast After the acquisition: Critical actions for tax departments, which covers a number of matters related to tax department involvement after an acquisition. View the archived webcast.
Contact Russ Daniel
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