medium · Private Equity & LBOs
A private equity firm is evaluating a target with significant 'Built-in Gains'.
If they acquire the company in a stock deal, what is the primary risk related to deferred taxes?
- The buyer inherits a large DTL without the benefit of tax-deductible step-up amortization to shield the future gains.
- The DTL will trigger an immediate tax payment upon closing.
- The target's NOLs are automatically disqualified by the DTL.
- The DTL must be paid out to the selling shareholders as part of the escrow.
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