Planning considerations for mergers and acquisitions.

• Author: Robbins, Larry E.

Though a fortunate business owner might experience only one merger or acquisition in a lifetime, M&A transactions represent a primary means for companies to return value to their owners, especially because public stock offerings offer little hope of creating liquidity in the near term. Of course, lack of liquidity in the public markets has had a depressing effect on M&A activity, too. In the "bubble period," we witnessed a number of North Carolina companies being acquired at prices of $100 million or greater. During the last two years, we have seen far more deals of $10 million or less. But the good news is that buyers are still there, often motivated by a chance to buy companies at lower prices.

Beyond valuation, the most critical consideration has been whether the price is paid in cash or in stock. If the buyer is a public company, sellers often view its stock as equivalent to cash. However, deals often limit the ability to liquidate the shares, subjecting the seller to the volatility of the public markets. So issues surrounding stock ownership and liquidity are paramount. Here are some other things to keep in mind if your business is a candidate for sale, now or in the future.

* Estate and financial planning. Estate planning focuses on controlling your estate and maximizing the value you can pass to future generations. One central principle (currently) is that a person can donate up to $11,000 per year ($22,000 for a married couple) to a recipient, such as a child, without paying any taxes on the transfer. The most effective estate planning involves the early transfer of assets that are likely to appreciate in value. Consider the effect of selling your business on the value of shares of your company In a few years, your company might appreciate from essentially nothing at inception to several million dollars. Early on, there is effectively no limit to the amount that can be transferred as a gift.

Once a deal is closed, a seller often faces another planning issue - diversification. Business owners too often, due to lack of time, lack of experience or a misguided sense of loyalty, fail to diversify a highly concentrated equity position. Wealth can be erased as quickly as it can be created, so get help from experienced financial advisers, not only to diversify but to find ways to achieve liquidity for the buyer's stock in tax-efficient ways.

* Golden parachutes. Sometimes the Internal Revenue Code can interfere with a transaction. For...