By Mauro Viskovic, Esq.
As the calendar inches closer to January, a peculiar phenomenon often unfolds in the world of mergers and acquisitions – a mad dash to close deals before the year-end bell rings. While it might seem like an arbitrary race against time, there are strategic reasons behind the urgency. Let’s unravel the motivations that drive this year-end hustle in the M&A arena.
- Tax Implications:
One of the primary drivers behind the rush to close M&A transactions before the year-end revolves around tax considerations. Completing a deal before December 31st can enable companies to optimize their tax positions for the current fiscal year. From potential deductions to the timing of recognizing gains and losses, the year-end deadline acts as a fiscal finish line that businesses aim to cross for tax efficiency.
- Financial Reporting and Earnings Impact:
Closing an M&A deal before the year concludes can impact financial reporting for the entire fiscal year. Companies may seek to include the acquired entity’s financials in their year-end reports, offering a more comprehensive and accurate reflection of their consolidated performance. This transparency is often valued by stakeholders, including investors and regulatory bodies.
- Strategic Planning and Goal Alignment:
Year-end represents a natural juncture for companies to reassess their strategic goals and achievements. Closing M&A transactions aligns with this reflective period, allowing businesses to start the new year with a fresh slate and a potentially expanded portfolio. The timing often syncs with companies’ annual planning cycles, fostering a sense of cohesion between strategic objectives and executed deals.
- Market Dynamics and Competition:
The M&A landscape can be highly competitive, with multiple players vying for attractive opportunities. The year-end rush reflects the urgency to secure deals before competitors swoop in or market conditions shift. This competitive element adds a layer of strategic timing to the decision-making process, making the year-end a sought-after closing window.
- Contractual and Regulatory Considerations:
Contracts often come with deadlines, and regulatory processes can be time-sensitive. Closing deals before year-end ensures that contractual obligations are met, and regulatory approvals are secured within the anticipated timeframe. This proactive approach minimizes the risk of delays or complications that might arise in the following calendar year.
- Deal Momentum:
There’s a psychological aspect to the year-end rush – the desire to start anew with a clean slate. Executives and dealmakers may feel a surge of motivation and momentum as they approach the end of the year, spurring them to expedite the decision-making and closing processes.
The rush to close M&A transactions before year-end is a multifaceted phenomenon, driven by a combination of financial, strategic, and psychological factors. As the clock ticks down, businesses strategically position themselves to leverage the unique advantages associated with closing deals before the year concludes. It’s a race against time where the finish line holds not just a transaction but a tapestry of fiscal and strategic advantages.
Notwithstanding our firm’s involvement in several M&A matters approaching the final curtain call of 2023, our attorneys remain available to assist with planning for next year’s M&A activity. For any M&A related matters, please do not hesitate to contact Mauro Viskovic at 516-751-6537 or [email protected].
Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a New York law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.
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