I always recommend that as a buyer that you really understand the type of entity you’re acquiring before you even go into signing an LOI and getting involved in that process because what that does is it allows you to include any necessary language in the LOI as to whether you’re going to do an asset or a stock deal.


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The importance of pre-LOI due diligence

It also allows you to potentially adjust purchase price. If you’re going to see that you’re not going to get any benefit of a step-up for tax purposes, then maybe you want to come in at a lower purchase price, so it allows you to do that on the front end. And it also just helps kind of reduce the amount of surprises for both buyer and seller throughout the process.

For a buyer, an asset acquisition is generally the best answer from a tax perspective because that’s typically going to give you a step-up for tax purposes. Sometimes a stock acquisition is required, especially in the healthcare sector when you have to maintain that provider number. It is difficult to receive a step-up for tax purposes if you’re buying the stock of a C corporation. I would encourage you to get your tax accountants and tax attorneys involved very early in the process to help potentially structure around that. I would also encourage you, if you are planning on paying additional purchase price, to get a step-up to model that out, see what it looks like. Because depending on how long you’re planning on holding that investment, it may or may not be worthwhile to try to pay extra for the step-up.