This paper deals with the influence of tax loss carry-forwards of target companies on their valuation in acquisitions. Under German tax law, losses can be offset with future profits, if certain conditions are met. This makes tax loss carry-forwards an asset, which may influence the corporate value of the target company from the purchaser's persepective. When and how tax loss carry-forwards may impact corporate valuations in the context of acquisitions shall be explained in this paper.
The main body of the paper is divided into two parts. The first part includes the theoretical foundations, beginning with a short introduction into the topic of M&A and company valuations for the further clarification of the topic. Afterwards, legal foundations about the treatment of tax loss carry-forwards in case of transactions are presented.
The subsequent analysis part includes mainly two qualitative research methods. At first, two expert interviews are conducted to find out how relevant the topic is in practice and how it is practically addressed. At second, the mathematical relationship between tax loss carry-forwards and the corporate value is determined by doing a case study. Thereby, a fictitious corporation is assessed. For a comprehensive research, different cases are considered.
During the last decades, mergers & acquisitions have increased substantially in popularity. Their growth in transaction volume and the number of transactions bespeak the importance of this topic. Although theory seems plausible, the success of M&A-transactions does not always meet expectations. On the one hand, this is often owed to unrealistic assumptions, especially overrated hypothetic synergy effects. On the other hand, it origins in the complexity of such transactions.
Inhaltsverzeichnis (Table of Contents)
- INTRODUCTION.
- THEORETICAL FOUNDATIONS...
- MERGERS & ACQUISITIONS.
- COMPANY VALUATION..
- TREATMENT OF TAX LOSS CARRY-FORWARDS..
- ANALYSIS...
- EXPERT INTERVIEWS...
- CASE STUDY AND MATHEMATICAL RELATIONSHIP.
- FINDINGS
- CONCLUSION..
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This study investigates the influence of tax loss carry-forwards on the valuation of corporations in the context of acquisitions. It aims to determine the relevance of tax loss carry-forwards in M&A transactions and identify the key factors affecting their value contribution.
- Relevance of tax loss carry-forwards in acquisitions.
- Factors influencing the value contribution of tax loss carry-forwards.
- Valuation of corporations in the context of acquisitions.
- Mergers and acquisitions (M&A).
- Tax implications of M&A transactions.
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter introduces the topic of mergers and acquisitions, highlighting the increasing popularity of such transactions and the challenges associated with determining accurate target company valuations. It also introduces the study's objectives and limitations.
- Theoretical Foundations: This section provides a theoretical framework for understanding M&A transactions and company valuations. It covers key concepts such as mergers, acquisitions, share deals, asset deals, and different valuation methods.
- Mergers & Acquisitions: This chapter discusses the different types of M&A transactions and distinguishes between mergers and acquisitions. It explains the legal framework in Germany and clarifies the focus on acquisitions in this study.
- Company Valuation: This section explores various methods for company valuation, focusing on the discounted cash flow (DCF) method and its different approaches. It highlights the importance of the WACC-approach for company valuation.
- Treatment of Tax Loss Carry-Forwards: This chapter examines the legal treatment of tax loss carry-forwards in M&A transactions, providing relevant legal foundations for the study.
- Expert Interviews: This chapter presents findings from expert interviews conducted to understand the practical relevance and application of tax loss carry-forwards in M&A transactions.
- Case Study and Mathematical Relationship: This chapter presents a case study to analyze the mathematical relationship between tax loss carry-forwards and corporate value. It uses a fictitious corporation and various scenarios to assess the impact of tax loss carry-forwards on valuation.
Schlüsselwörter (Keywords)
This study focuses on key topics including mergers and acquisitions, company valuation, tax loss carry-forwards, discounted cash flow analysis, and the WACC approach. It examines the impact of tax loss carry-forwards on the valuation of corporations in the context of acquisitions.
- Quote paper
- Daniel Ehrmann (Author), 2017, The Influence of Tax Loss Carry-Forwards on the Valuation of Corporations in the Context of Acquisitions, Munich, GRIN Verlag, https://www.grin.com/document/921466
