Tax Optimization for Private Equity Funds October 31, 2017
Featured speakers Barry Grandon Managing Director M&A Tax Services Grant Thornton LLP Tom Freeman Partner Tax Practice Leader Grant Thornton LLP Melanie Krygier Senior Manager M&A Tax Services Grant Thornton LLP Grant Thornton LLP. All rights reserved. 2
Learning objectives 1 Identify strategies for value creation focused on tax 2 Assess current relevant risks impacting PE portfolios 3 Highlight tax optimization opportunities that may be employed across PE investment portfolios Grant Thornton LLP. All rights reserved. 3
Agenda 1 Overview of strategy 2 Opportunity assessment 3 Re-evaluate/Redesign/Staying connected 4 Lessons learned Grant Thornton LLP. All rights reserved. 4
Creating value across the M&A Life Cycle Grant Thornton LLP. All rights reserved. 5
Overview of strategy Private Equity tax portfolio optimization What is it? The process of driving value through tax minimization consistent with a company s current and future business plan and other business exigencies which includes optimizing, preserving, investing and raising capital Evaluate current state opportunities & risks (capital events, business changes, etc.) Evaluate future state devise a tax plan consistent with the company s future business plan Consider the exit opportunities, risks and challenges Grant Thornton LLP. All rights reserved. 6
Overview of strategy Private Equity tax portfolio optimization What is it? Understand business plan/projections to evaluate tax inefficiency and potential opportunities Evaluate tax and tax related inefficiencies Drive value to the portfolio and the fund Preservation of tax attributes Identify tax risks and manage such risks Position for exit Grant Thornton LLP. All rights reserved. 7
Opportunity assessment Identify tax opportunities or risks Tailored written questions Company functional area interviews Financial Legal Sales Plant Managers Available financial and tax records Grant Thornton LLP. All rights reserved. 8
Opportunity assessment Assess and measure the portfolio company's tax profile and risks at various stages Current State Benchmark effective tax rate Identify quick-hit opportunities and more subtle tax technical issues Future State Understand the business and strategic direction What are the challenges to value creation? What plans are being assessed at the Private Equity fund and the portfolio to drive value Recapitalization, product sourcing, geographic expansion, facility closings, etc. Exit or monetization event Grant Thornton LLP. All rights reserved. 9
Opportunity assessment Analyze the data Develop preliminary opportunities Identify potential risk factors Prioritize according to quick hits, mid-term, or long-term objectives Grant Thornton LLP. All rights reserved. 10
Implementation Deliver summary tax optimization report Cash tax savings Risk mitigation Associated considerations related to non-tax costs Detailed design and implementation Grant Thornton LLP. All rights reserved. 11
Re-evaluate/ Redesign/ Staying connected Review and re-evaluate the implemented strategy (at least quarterly) Has the implemented strategy lived up to its expectations/anticipated benefits Does it need to be revised Review the state of the business, including changes in the strategic direction Redesign and implement changes to the initial strategy or implement a new strategy Grant Thornton LLP. All rights reserved. 12
Lessons learned Communication/coordination is critical Change can be scary and management teams may be apprehensive We are all on the same team We will need their help for this process to work They can assist in the process if they have the bandwidth Consult with management around who and what forum findings need to be raised Significant tax exposures should be elevated Work with cross-functional teams to consider how exposures can be mitigated and opportunities can be realized Accelerate resolution of exposures in advance of a sale or IPO Grant Thornton LLP. All rights reserved. 13
Lessons learned Consider the impact not only on the company but at the fund UBIT issues PHC Deemed exchanges on debt Grant Thornton LLP. All rights reserved. 14
Disclaimer This Grant Thornton, LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered. For additional information on matters covered in this presentation, contact your Grant Thornton, LLP adviser. Grant Thornton LLP. All rights reserved. 15
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