Selecting the Form of Acquisition Vehicle and Postclosing Organization

This chapter focuses on the alternative forms of legal and organizational structures that can serve as acquisition vehicles and postclosing organizations. It discusses the implications of each for risk management, financing flexibility, tax optimization, and management control. The acquisition vehicle is the legal or business structure employed to acquire a target firm, and the postclosing organization is that used to operate the new company following closing. Determining the legal form or business structure of an acquisition vehicle or postclosing organization should follow the creation of a coherent business strategy. The choice of legal structure should be made only after the acquirer is comfortable with the venture's objectives, potential synergy, and preliminary financial analysis of projected returns and risk. The decision about which legal entity to use as an acquisition vehicle requires consideration of a host of practical, financial, legal, and tax issues, which could include the cost and formality of organization, ease of transferability of ownership interests, continuity of existence, management, control, ease of financing, method of distribution of profits, extent of personal liability, and taxation. Each form of legal entity has markedly different risk, financing, tax, and control implications for the acquirer. The selection of the appropriate entity can help to mitigate risk associated with the target firm, maximize financing flexibility, and minimize the net cost of the acquisition to the acquiring firm.