For most company buyers, taxes are a priority when negotiating a purchase price. However, if tax issues are neglected during the integration phase, the negative consequences can be serious. To improve the likelihood of a successful merger, it’s important to devote resources to intensive tax planning before — and after — your deal closes.
During deal negotiations, you and the seller will likely discuss issues such as deductibility of transaction costs and the amount of local, state and federal tax obligations the parties will owe upon signing the deal. Often, deal structures such as asset sales can benefit one party and have negative tax consequences for the other, so it’s common to wrangle over taxes at this stage, says Sean Muller, partner-in-charge of Houston Tax and Strategic Business Services at Weaver.
“With adequate planning, companies can be spared from costly tax-related surprises after the transaction closes and integration of the acquired business begins,” Muller says. “Tax management during integration can also help your company capture synergies more quickly and efficiently.” You may, for example, have based your purchase price on the assumption that you’ll achieve a certain percentage of cost reductions via post-merger synergies. However, if your tax projections are flawed or you fail to follow through on earlier tax assumptions, such synergies may not be realized.
Smart Business spoke with Muller about tax planning after the deal closes.
What is one of the most important tax-related tasks in a deal?
Integrating accounting departments is critical, and there’s no time to waste. The seller may have to file federal and state income tax returns or extensions either as a combined entity with the buyer or as a separate entity within a few months following the transaction’s close. Companies must also account for any short-term tax obligations arising from the acquisition.
To ensure the two departments integrate quickly and are ready to prepare the required tax documents, decide well in advance of closing which accounting personnel to retain. If different tax processing software or different accounting methods are used, choose between them as soon as feasible. Understand that, if your acquisition has been using a different accounting method, you’ll need to revise previous tax filings to align them with your own accounting system.
What are the major areas of concern for companies related to tax planning and operational synergies?
Before starting to integrate products, personnel and facilities, examine the tax implications of those actions. Major areas of concern include:
- Supply chain integration. Combining the logistical operations of both companies may make fiscal sense on paper, but there could be tax consequences. Say, for example, that you’re planning to close your seller’s main warehouse and fold operations into your company’s existing warehouse facilities. What if the acquisition’s warehouse is domiciled in a more favorable tax locale than your warehouse?
- Divestitures and sell-offs. Buyers often spin off unwanted divisions or products when they acquire a business, but from a tax standpoint such moves can be costly. For example, selling a segment could eliminate certain tax write-offs or protections. You also need to plan for the tax consequences of selling newly acquired assets.
- Global implications. International acquisitions can be a tax minefield. Companies should keep in mind the kinds of new exposures the deal carries, such as value-added taxes. Also, consider how a foreign purchase may affect your company’s effective tax rate. Be sure your M&A advisory team includes people who are knowledgeable about the relevant tax laws.
- Enterprise resource planning (ERP). If the two companies’ ERP systems aren’t merged and synchronized, data collection could slow or you could lose tax data. This could affect the accuracy and speed of the combined organization’s financial reporting.
When acquiring a company, your to-do list will be long, which means you can’t devote all of your time to the deal’s potential tax implications. However, the tax consequences of M&A decisions may be costly and could impact your company for years. So, if you don’t have the necessary tax expertise in-house, work with outside advisers that do. ●
Insights Accounting is brought to you by Weaver
“We know that leaders aren’t born,” he says. “There’s an evolutionary process of skills, training and maturation that defines leadership development. There’s now a burgeoning demand for better skilled, analytically-trained people to move into positions of leadership.”
Smart Business spoke with Schockman about the state of leadership development and how the current crisis might subside.
How has this crisis of leadership manifested?
The crisis of leadership begins with questions around ethical decision-making. When people enter leadership positions in the public or business realm, they carry a toolkit of their own values and structures, and sometimes those values conflict with each other. At the end of the day, leaders have to make decisions — they can’t just sit on conflicting values.
So, at some point along the way, it becomes a lose-win situation. The crisis lies in the simple fact that too many leaders don’t understand how to achieve ethical decision-making. As you move from there, leaders become distracted by the myriad minutia that they encounter. The visionary piece gets lost.
A lot of good visionaries become functionaries, which signals another death knell for leadership.
In broad terms, how is leadership taught?
How do you get a leader to acknowledge, mid-career, that leadership training is appropriate?
Leaders need to recognize that this is about lifelong learning, about the undulating mind wanting to absorb more at any stage in one’s lifespan. Leadership doesn’t reside in a single silo. It carries over into your personal life, your community/volunteer life, your religious organizations and so on. You become a person who is a übermensch — someone who has big understanding of how leadership moves in a holistic manner.
In the private sector, you’re typically looking at a command structure, where followers become geared to the bottom line and management enlists a particular skill set to get people there. Ultimately, the question is, how can you get ahead of any changes?
The 12th century philosopher Maimonides wrote that the highest form of giving is doing so anonymously. In that way, the person who’s receiving your money doesn’t owe you a favor. And that’s what today’s leadership often lacks. It’s always this climbing on top of each other, of trying to out-do each other, without a sense of the bigger mission, the bigger picture.
What other models epitomize that big picture approach?
Abraham Lincoln. Lincoln was a walkaround leader. He was at the battlefield. He was directing General Grant. He was talking to troops. He knew what was happening in the war. And yet, he had the bigger vision piece of, ‘I’m not only going to hold the Union together, but I’m going to end slavery.’
It comes down to communications skills. Leaders need to be storytellers. Leaders need to develop a contextual basis for their narrative. Lincoln was also very clear about not doing this alone. He cherry-picked his cabinet carefully, as a CEO would, and made sure his team executed and implemented. ●
At the end of the day, leaders have to make decisions — hey can’t just sit on conflicting values. So, at some point along the way, it becomes a lose-win situation. The crisis lies in the simple fact that too many leaders don’t understand how to achieve ethical decision-making.
In broad terms, how is leadership taught?
That segues to a discussion of the hallmarks of effective leadership. What might those be, generally speaking?
Leaders need to be storytellers. Leaders need to develop a contextual basis for their narrative. Lincoln was also very clear about not doing this alone. He cherry-picked his cabinet carefully, as a CEO would, and made sure his team executed and implemented. ●
Experts are needed to explain what is reasonable in various industries, scientific or technical information, complicated financial data, and anything else that laypersons might have difficulty understanding on their own.
That’s why having a good expert witness is critical to litigants.
They tend to have a broad range of knowledge and meet the legal requirements to testify as experts, but they lack intense industry-specific knowledge and can be expensive. In some instances, you may be better off hiring an expert who actually works in your industry, even if that person has never been an expert witness before.
For example, many of my small business clients are small to midsize manufacturers with five to 10 serious competitors in the world. Only a small number of people can testify about those industries without first undertaking significant research.
While such true industry experts are not as polished in court, they may be as good or better than professional expert witnesses, and much cheaper.
How can experts help before trial?
Business clients are often reluctant to micromanage lawyers, but it’s important for business owners to understand that if you can suggest a good expert witness, do not hesitate to suggest that person to your lawyer. ●
Smart Business spoke with Breuer about the benefits of ESOPs and how they’re implemented.
This is an attractive option to companies that may need capital to acquire the stock. Implementing an ESOP also allows a company to receive significant tax and financial benefits. Among the numerous benefits, the dividends paid on stock held by the ESOP are fully tax-deductible, the principal can be repaid with tax- deductible funds, and the owner can choose what portion of his or her stock to sell.
The transaction costs associated with ESOPs are also comparable to traditional buy-outs.
Under certain circumstances, selling shareholders can defer the entire gain recognized from the sale of shares for federal income tax purposes.
Improve performance, optimize efficiency and deliver value. That’s what employers are always under pressure to do. What many employers do not realize is that an integrated approach to safety and health can play a major role in creating healthier, high-performing workforces.
“Employers can have a major influence on the health and care behaviors of employees,” says Dr. Michael Parkinson, senior medical director for health and productivity at UPMC Health Plan. “Employers have a major role to play in both improving health and reducing health-related costs.”
Smart Business spoke with Parkinson about how to best improve employee health and productivity and reduce health costs.
What is the connection between employee health and company productivity?
Growing competitive and economic forces increasingly challenge employers and leaders of all organizations. A core asset of any organization is the health and productivity of its workforce, its ‘human capital.’ And as visible leaders, employers can influence their employees. It makes sense to provide an integrated, incentivized strategy to address the core drivers of poor health, excessive medical costs and lost productivity. Healthier employees are safer employees, and healthy, alert employees reinforce properly designed workplaces and safety policies.
By following an integrated and incentivized strategy that addresses the core drivers of poor health, excessive medical costs and lost productivity, employers not only improve the health and care behaviors of employees and their families but also add dollars to both their top and bottom line.
Total health management is increasingly being recognized as a business necessity, not a ‘nice to do.’
What’s the first step?
Building a culture of health, performance and productivity has been shown to be a critical determinant of the health and competitiveness of any business.
A comprehensive assessment of environmental drivers of health and productivity is an essential first step to determine an organization’s strengths and needs. The work environment is not just the traditional physical workplace, but also attitudes, behavior policies, compensation schedules and promotion opportunities.
Creating simple, reinforcing messages in corporate vision, compensation, and promotion and benefit alignment sends the message that employee and family health is core to the organization’s success.
How can healthy behaviors be improved?
Assisting employers to create the infrastructure to sustain health, wellness and productivity is a key responsibility of a health plan. A health plan can help sustain health and productivity through consultation, educational support, benefit alignment, and the creation of a wellness committee to initiate and sustain wellness efforts.
The recognition and rewarding of healthy employee champions is a key leadership message, along with making it known that the employer wants to assist employees and their families in achieving health goals.
By offering employees a health plan with appropriately designed and communicated incentives, employers have an evidence-based method to improve behavior change and increase employee engagement. Account-based, consumer-directed plans with additional targeted incentives for health improvement and care management decisions increase employee engagement and produce health care costs savings.
What results can an employer expect from an integrated and incentivized strategy?
The majority of the known causes of excessive health care and productivity costs — stress and mental health, absenteeism, short- and long-term disability, workers’ compensation, occupationally-related illness and injuries — can be addressed by an employer using a comprehensive and integrated strategy supported by targeted tactics, programs and practices.
By improving the health status of employees (and their families), by assisting them to get involved in their medical care decisions with their doctors and by directly targeting specific ineffective and inefficient medical practices and delivery modalities, both the employer and the employee can improve health and produce savings. ●
Insights Health Care is brought to you by UPMC Health Plan
A commercial interior design firm works to help companies find a space that’s an effective setting for their operational and aesthetic needs, and tailors its services to best suit specific client goals. For example, one client may be relocating because of growth, another wants to reflect its rebranding throughout a new office, and another is downsizing operations and needs a cost-effective relocation solution. Design firms help clients such as these achieve their goals while saving them money, time and hassle along the way.
Smart Business spoke with Sam McWilliams, managing partner at SMC Consulting, LLC, to learn more about effective office relocation and design.
What are some ways to ensure a space suits a company’s needs?
A designer uses programming to learn about a company and its needs. He or she will spend a day at your office talking with management and employees to understand what is and isn’t working, then develop a space plan that will maximize efficiencies and increase productivity.
Another aspect of programming is learning about the company’s desired image and work to reflect that in its office look and design. Companies can effectively market themselves by injecting their brand image into their physical space. This can be achieved by using logo colors within the space or by finding ways to highlight the company’s products and services through imagery and design. If your space welcomes the public, then it should remain consistent with your brand promise and image.
How can a design firm help during relocation or construction?
A professional designer can help you get the most out of your rentable square footage by doing ‘test-fits’ in several buildings. This will help determine which building gives you the most usable square footage while comparing rentable cost per square foot rates.
Once a site is chosen, third-party oversight becomes an extremely valuable service to clients. Having a project manager represent you on a construction or relocation project ensures quality, cost control and that schedules are kept.
Weekly project update meetings will keep you informed and assured that the project is running smoothly. Project managers will keep control of the schedule, providing sufficient time for long-lead items and ensuring all the elements are in place and tasks are completed when they should be.
What needs to be done with the former location upon leaving?
First, know when your current lease termination date is and plan accordingly to avoid penalties. The more lead-time you have, the better project costs and schedules are controlled.
Next, avoid unexpected costs by reading and understanding the termination requirements in the lease. Some leases require that the building be restored to its original condition, which may require demolition, construction, data cable removal, etc. Some leases only require a cleaning after all assets have been removed. A relocation manager can provide assistance in the building closeout process.
What are ways a company can minimize the impact of a move on employees?
Companies should provide perks when relocating farther from ‘home’ because the risk of losing good talent is possible. Offset additional travel costs by offering free or reduced parking fees, public transportation discounts, or institute a flextime or a compressed workweek schedule. You can also identify area day care facilities and other personal services that are important to your employees before you announce the new location.
How can companies minimize operational interruptions when relocating?
Relocation managers take the hassle out of a physical move, whether it’s a multi-phase move, consolidating multiple offices into one or a single-phase move over a weekend. Let them get you from point A to point B with little or no downtime.
Choose a design firm that can build an in-house team of designers, furniture planners, project managers and relocation experts. Firms that provide one point of contact, with all the resources at hand, makes the entire process seamless, which enables clients to focus on their core business. ●
Insights Facilities is brought to you by SMC Consulting, LLC
Whether you love it, hate it or are still “on the fence,” the implementation of health care reform is in full swing.
“While escalating health care costs have long been a concern of employers who desire to offer a quality, competitive employee benefits package to their workforce, health care reform has presented even more challenges in terms of changing legislation, compliance issues and requirements,” says Ron Smuch, insurance and benefits analyst at JRG Advisors. “The business decisions that employers face today are more complex and require educated consideration and guidance.”
Consumerism, however, is a strategy often overlooked by employers in their efforts to keep health care costs down.
Smart Business spoke with Smuch about how to better manage health plan costs by promoting consumerism strategies.
How does consumerism help with costs?
Employees who make smarter, more cost-effective health care decisions have a positive impact on health care costs for themselves and for their company. Many employees simply underestimate the value of asking questions, researching health care options and taking a more active role in their health care purchasing.
What does it mean to engage employees to be wiser health care consumers?
Most people already practice ‘consumerism’ with purchases they make. Individuals will dissect a newspaper or magazine in search of coupons that will save them 50 cents. Yet when it comes to health care, which is a more complex and costly service, rarely do they ask questions or even consider other options that could save money.
How can you get started?
Making more conscientious health care decisions starts with educating employees on how their health insurance plan works. They need to know what is covered and what is not, and which providers or facilities to use to receive the most cost-effective, quality outcomes-based care.
Employees should be educated to ask their doctor questions such as: ‘How much does the treatment cost? Is there another option that is equally effective but less costly? What are the risks or side effects?’
Another area to educate employees is about prescription drugs. Surprisingly, many people mistakenly think that there is a difference between generic and brand name prescription drugs. They are unaware that the difference lies in the drug name and, yes, you guessed it, the cost.
How can making wise choices extend to emergency room use?
A trip to the emergency room is one of the most expensive types of outpatient care. Emergency rooms should only be used for true emergencies, as they are staffed, equipped and best suited for medical emergencies. Going to an emergency room for non-emergency care is a poor use of health benefits and is very costly.
Consumers should consider using an urgent care facility to assist with non-emergent care needs. For example, if you have a cold or unidentifiable rash that needs attention sooner than waiting through the weekend to see your general practitioner, consider going to an urgent care facility.
What’s the best way to create and implement a strategy that engages employees?
While these are just a few examples of wise health care purchasing, companies need to choose an advisor who can properly review its workforce demographics, utilization, trends, risks and rewards to create the consumerism strategy that is engaging, measureable to objectives and effective in achieving established goals.
Today’s health care landscape requires a consultative approach and commitment to strategic planning, expertise, innovation and technology. Companies should partner with an advisor who takes a proactive approach to educating employees about consumerism strategies. Through the use of employee communications, fliers, posters and payroll stuffers, employees can be educated to make wiser health care decisions and in turn become smarter health care consumers.
At the end of the day, quantifying the overall plan cost savings and improving employee health is the best and most rewarding engagement tool for employers and their employees. ●
Insights Employee Benefits is brought to you by JRG Advisors
Medical Mutual 2014 Pillar Award for Community Service
On Jan. 16, 2014, Smart Business and Medical Mutual presented the 2014 Medical Mutual Pillar Award for Community Service event to a well-deserving group of honorees.
The evening event, held at the Statehouse, not only recognized corporate philanthropy in many forms and the special relationship between the for-profit and nonprofit worlds, but it also award grants to worthy causes.
“If you aren’t familiar with the Pillar awards, you may view it as another night away from home for people who are already very busy. But that couldn’t be less true,” says Mark Pizzi, president and COO, Nationwide Insurance. “This night is very special. It’s a truly inspirational evening that provides a respite from the often negative and tumultuous news we hear each day. The Pillar awards recognize individuals who make this world a better place through sheer will and commitment. I can’t think of a more satisfying and inspirational evening.”
Nine organizations and seven individuals were honored with Pillar Awards throughout the night.
For corporate philanthropy in all its forms, The Crane Group, Diamond Hill Investments, Fifth Third Bank, Franklin International, Molina Healthcare of Ohio Inc., OhioHealth, Sequent and White Castle were all honored.
The Medical Mutual SHARE Award for the organization that best represents employee-driven philanthropy went to Delta Energy Services.
The Rea & Associates Nonprofit Executive Directors of the Year are:
The Nonprofit Board Executives of the Year are:
- Mark A. Pizzi, president and COO of Nationwide, for his work on the board of The Buckeye Ranch.
- Thomas H. Welch, president and CEO of Grange Insurance, for his work on the board of LifeCare Alliance.
- Laura Yaroma, division manager, administration, at Honda of America Manufacturing, for her work on the board of YWCA Columbus.
The final honoree of the evening was Tom Feeney, CEO of Safelite Auto Glass, who received the 2013 Kent Clapp CEO Leadership Award.
In addition, The Pillar Foundation, established within the past year by Smart Business, reached its fundraising goal of $150,000, thanks to matching a commitment from Medical Mutual. At the event, the foundation seeded a new Pillar Fund at The Columbus Foundation with a $10,000 check, and $3,000 match from The Columbus Foundation.
Medical Mutual also presented a $25,000 grant to YWCA Columbus’ shelter program.
Rewind to 1964, the summer The Beatles invaded America —the world has never been the same.
Fifty years later, Trends International of Indianapolis is hoping to help recreate those old memories — and new ones — by producing licensed posters, stationery and other items showing the record-setting band, marking the 50th anniversary of Beatlemania in the U.S.
For Vice President of Licensing Jeff Loeser, handling a product featuring one of the most popular brands isn’t unusual.
“We are used to dealing with similar types of artists, bands and brands, so we know the steps that we have to go through to get the approvals and what they will and won’t approve,” he says.
Protecting the image
“They don’t like to have their images or likenesses altered, which you can understand. They want it certainly to be a good quality product, and not a case of just kind of slapping their logo on something,” he says.
It’s not a case of taking the money and making a “Run for Your Life.”
“It’s more about protecting the brand perception, and keeping it at a higher end, if you will, and keeping it on products that won’t portray them as selling out,” Loeser says. “We deal with some of the largest studios and consumer product companies in the world, whether it’s Disney, ‘Star Wars,’ Marvel or different sports leagues, they are all very protective of their trademarks and their brands and how they are represented in merchandise.”
While almost everything imaginable has been marketed with the image of The Beatles, Trends International is sticking to some image-specific items — stationery, posters, calendars, stickers, decals and writing instruments.
One of the iconic photos being used is of the young Beatles in coats and ties walking in the streets of London. Later photos of the mustached and bearded Fab Four are also being used.
Trends International released posters and bookmarks late last year and is scheduled to market gel pens, stylus pens, stickers and decals in the first quarter this year. Then in the third quarter, 2015 calendars will be available. All products will be distributed through national retailers, as well as independent specialty and gift stores.
Trust and comfort
“We’ve worked with Bravado (Universal Music Group’s global merchandising company) for a long time, so I think part of that is they have a trust and a comfort level with the types of designs that we do, and our distribution and how we will treat the image of their artists,” Loeser says. “In addition to The Beatles, we represent a lot of other artists, but that is a sensitive topic of course because it does reflect directly on these high profile celebrities. But we are used to doing that.
“I think we treat everybody that way. Everyone’s brand or likeness, if it is a celebrity, we can appreciate their wanting to be portrayed in the best possible light, on the best possible product. We treat everybody that way whether it’s The Beatles or an up-and-coming star. But from our approach, we treat them all that way, and I think based on the types of products we do and sell — we’ve been in business for 26 years — they have that trust that we know what we are doing.
“They know their brand, they know their talent better than anyone, and we know our products and our consumers, our core demographics. We are very good at what we do and they are very good at what they do, so you put the two together and end up with some great products.”
In 2013, Bravado signed an agreement giving them the rights to offer official Beatles merchandise in North America. Trends International, however, isn’t the only third party to reap the benefits of this deal. Boelter Brands is producing merchandise glassware, drinkware and tabletop accessories. Working with Bravado, both licensees will produce special items featuring images from “Yellow Submarine,” the animated film in which The Beatles travel through the fantasy world of Pepperland facing the Blue Meanies.
“When dealing with a band as iconic and beloved as The Beatles, Bravado has had to be very careful with the band’s image and what companies to partner with,” said Tom Bennett, CEO, Bravado. “Both Trends International and Boelter Brands are at the top of their respective areas and we’re confident that The Beatles brand will be well taken care of and that Beatles fans will be very pleased with the vast array of products.”
Loeser says Trends International pursued the licensing deal, but had an existing relationship with Bravado so it was somewhat collaborative.
“For the products that we produce, we are kind of the go-to company for those products,” he says. “They know we have the distribution, we have quality, we have the retail relationships, and because we worked with them on other projects, when The Beatles became one of their clients, it was a good match.”
As for a sales forecast, you have to admit that money “Can’t Buy Me Love,” but it sure can bring back some memories from 1964.
“I imagine the calendars and posters probably will be the biggest sellers,” Loeser says. “Those categories, by nature are larger than our stickers, bookmarks and writing instruments. It is all going to be designed with the core fan in mind, and it seems like every new generation discovers or rediscovers The Beatles. So they always seem to have something going on, like the ‘Love’ show in Las Vegas.”
What will it take for Bravado to call the venture a success? When will Loeser be able to say, “I Feel Fine?”
“I can’t speak for them,” he says. “I think certainly sales are a factor. But if it came down to getting an order for something that they weren’t comfortable with or didn’t really care for the design on, and there was a customer ready to order it, they would probably rather say no and miss the order than get the order and put something in the market that doesn’t meet their expectations.
“There are certain things like that. We haven’t come across that yet, but from just being in this business, working with other licensors, you see that sometime. Some licensors don’t care. It’s just all about the money, and they will put their brand or their logo on anything whether it makes sense or not.
“They are not the fads that come and go but they are the ones that last, are maybe a little bit more particular about what they will and won’t approve,” he says.
In other words, if your effort requires “Eight Days a Week,” it’ll be sure to last.
“We are really excited about it,” Loeser says. “I think it is going to be a great opportunity. We have a great design department. I think we are going to give it a nice, fresh look, using what’s available. Our initial response from our customers and everyone has been really positive too. We think it’s going to be great.” ●
How to reach: Trends International, (866) 406-7771 or www.trendsinternational.com