Avoid getting more than you bargained for in M&A deals

The landscape of mergers and acquisitions (M&A) is changing, and companies are expanding their traditional approach to include a more expansive view. Alliances, partnerships, joint ventures, and special purpose acquisition companies all contribute to the strategic role M&A can play for business, according to the latest Deloitte M&A Trends Survey. 

The responses from the Deloitte survey indicate that dealmaking will play an important role in business recovery after the initial impact of COVID-19 on the economy. Nearly half (42%) of the responses show interest in alternatives to traditional M&A. Of course, these strategies come with their own set of challenges.

The importance of a thoughtful integration strategy can’t be stressed enough. Take stock of your technology: Are the platforms, systems, and software solutions you have now adequate, or are critical changes needed to fully take advantage of growth opportunities? This includes a tax compliance solution that can scale with your business as it grows.

Meshing together people, assets, systems, and processes is messy. It takes smart planning and careful execution to do it right. Your newly formed entity, while ripe with promise, could also pose some challenges. Parts of the two businesses may naturally align; others may not. Tax compliance typically falls into the latter bucket, but rarely gets addressed early on. Finance, operations, and IT have their hands full with other priorities and the minutiae of managing tax is typically way down on the list. It shouldn’t be. Assessing the state of tax compliance across the newly combined entity early in the process can save you from serious headaches later. For starters, the target company may be carrying tax attributes on its books or ongoing tax audits that could transfer to the new organization. These should be properly identified and managed early to avoid costly and risky surprises later.

Changes to your business traditionally lead to changes in your tax obligations. That’s almost certain to happen now that economic nexus is the standard for sales tax collection in every state where there is a sales tax. So, it helps to assess how the assets you acquired in the deal — more locations, more customers, more products — affect your tax liability. Having a reliable, scalable plan in place to deal with any new tax obligations that result from these changes is imperative to avoid lapses in compliance that could come back to you.

Following a merger or acquisition, it’s good practice for chief financial officers or controllers to dive deep into how compliance is being managed, identify vulnerabilities, and look for new or better ways to operationalize or optimize the newly combined businesses. This is the perfect time to address redundancies in platforms or applications. You may also uncover process gaps where new solutions or functionality are needed to advance your growth objectives.

Accenture found that companies that take the time to properly integrate systems following a merger reduce the costs of key business functions by as much as 40%. Yet companies often underestimate the complexity or work that goes into merging systems and processes. Failing to properly integrate systems may lead to mistakes, miscalculations, or replication of data. While it’s understandable that differences may exist early on in the process, such discrepancies are harder to explain or defend over time.

For many companies, this is the tipping point when tax automation becomes critical. A TechValidate survey of Avalara customers found that a third of the companies that made the choice to automate sales tax had been through a merger or acquisition. Another 20% of the customers surveyed planned to acquire a company in the near future and proactively chose to automate sales tax to prepare for the event.

Changes to sales tax rates and rules are often done last minute or with minimal notice, so it’s not always easy to know when they happen or how they affect you. If you’re making these updates manually in several different systems or server locations, it’s a lot harder to be consistent and timely, which could impact sales and customer service. Avalara automated, cloud-based tax solutions make those updates and changes in real time and push that data to your systems simultaneously, so you reduce the risk of errors or oversights.

Having sales tax automated in your ERP, ecommerce system, or other financial application makes sure you’re able to keep up with your compliance obligations as your business grows or changes. Cloud solutions, like Avalara, integrate easily with your existing systems and can help protect against lost or spotty data resulting from a platform change, upgrade, or consolidation. They can also help unite valuable transaction and tax data from disparate systems and processes so that you have a singular view of your new entity. Learn more about managing growth and mastering tax compliance with Avalara.