Jeff Paravano Analyzes Effects of Anticipated Tax Reform on M&A Activity

News / July 18, 2017

Partner Jeff Paravano is quoted extensively in a news analysis published July 18, 2017, by Tax Notes International. The news analysis, “U.S. Tax Reform a Minor Player in M&A Trends, Practitioners Say,” discusses the effect of tax reform uncertainty on mergers and acquisitions activity.

Paravano explains in the article that, in anticipation of U.S. tax reform that includes moving to a territorial tax system, he has seen a complete cooling off of U.S. companies’ desire to invert and of foreign purchasers’ willingness to pay a premium for U.S. companies based on anticipated tax savings from moving a U.S. company’s headquarters abroad. He noted that “Part of the surge we have seen in multinational M&A seems to come from a comfort level with Brexit,” and that the uncertainty associated with Brexit that resulted in a cooling of U.K.-based multinational transactions last year seems to be dissipating fairly quickly. He further pointed out that some multinationals hope being based in the U.K. could become beneficial as that country frees itself from potentially harsh EU tax rules regarding related-party transactions and claims of prohibited state aid.

Paravano told the publication that owners of closely held businesses seem to prefer to wait for tax reform before selling, but “we do not see any similar hesitation on the purchase side.” Paravano noted that while there has been some recognition by private equity and public company purchasers that sellers might be willing to take less consideration in 2018 when individual tax rates are expected to be lower, “that possibility seems overwhelmingly overshadowed by the expectation of purchasers that any business purchased in 2017 will become more valuable once tax rates are reduced.”

What has declined since early this year is tax credit planning, Paravano told Tax Notes. U.S.-based corporations expecting that tax reform will include a low tax rate on funds repatriated in 2017 “continue to keep tax credit planning transactions on ice as they continue to expect tax reform to be completed before December 31st.”

Read the article (registration required).