Middle Market M & A, 2nd Edition

CHAPTER 14Deal Structure

STRUCTURAL PRIORITIES

Structuring a transaction requires balancing multiple considerations of both buyer and seller. There is no single best structure for middle market transactions and there are often multiple alternatives to accomplish the same transactional goals. Although this structural “blank sheet of paper” allows for creativity, it can also be daunting to determine where to start.

The intended structure of a transaction is often set forth in the letter of intent (or LOI), which is further discussed in Chapter 18. It is common for the LOI to be exchanged between buyer and seller multiple times, while structure and terms are negotiated. When this negotiation is done, the transactional structure needs to incorporate and balance the following key elements:

1. Business and economic terms of the deal
2. Tax considerations of buyer and seller
3. Legal considerations of buyer and seller
4. Regulatory considerations and third‐party consent requirements

Deriving the final structure of a transaction is an iterative process. For the seller, it begins with an ideal structure that will allow the seller to maximize after‐tax proceeds and carry little risk beyond the deal. For the buyer, the structure is dictated by a combination of tax benefit optimization along with risk mitigation while capturing the value bargained for.

This chapter addresses the foundational concepts in deal structure, but is not meant to be exhaustive; there are significant nuances in each situation. ...