Tax Law Defined® Blog

Rollover Equity Transactions 2019

Rollover Equity Transaction 2019

We recently published an article on our website (which was further published by Law360 and Lexology) addressing tax and business aspects of structuring equity rollovers in M&A transactions involving private equity buyers.

As the article suggests, a key aspect from the selling shareholders' standpoint is that the transaction structure permits their target company equity to be is exchanged for buyer's equity on a tax-free basis (i.e., deferred until the target company is sold down the road).  Of course, it remains true that most buyers would prefer fully taxable asset purchases, which permits a complete step-up in the tax basis of the target company's assets for future depreciation and goodwill amortization write-off purposes. But the seller-friendly M&A environment usually translates, however, into buyers who are willing to cooperate in structuring a tax-deferred rollover. 

The article works its way through various approaches for structuring tax-free rollovers, with the common variables being the tax status of the parties (e.g., corporation or tax partnership) and other structural aspects of the M&A transaction (e.g., nature of the consideration; asset, LLC interest or stock sale).

The article also addresses certain tax traps common to rollover transactions and the tax consequences of rolling over various types of stock rights. 

In addition to tax issues, the article explores a variety of business and governance issues associated with participation in a rollover transaction.

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J. Aaron Byrd is FBT’s Estate Planning Team leader and counsels on probate, trust administration, business succession, and asset protection planning, as well as gift, wealth transfer and generation-skipping taxation issues.