Perpetual's Tax Misstep: Lessons for M&A Due Diligence

Unexpected ATO Ruling Highlights the Importance of Tax Due Diligence in M&A Deals

In December 2024, Perpetual, a well-known Australian wealth management firm, faced a significant challenge during its planned sale of its corporate trust unit to private equity firm KKR. The sale was delayed due to an unexpected tax ruling from the Australian Taxation Office (ATO). This incident underscores the critical importance of thorough tax due diligence in M&A transactions.

Identifying Hidden Tax Risks

Perpetual’s deal highlights the potential for unexpected tax liabilities to derail an otherwise well-structured M&A transaction. In this case, the ATO's unexpected ruling forced the parties involved to reassess the tax implications of the deal. Tax due diligence is essential to uncover hidden liabilities and ensure that the transaction is structured in the most tax-efficient way.

Understanding Tax Implications Across Jurisdictions

For M&A deals that involve cross-border transactions, understanding tax regulations in multiple jurisdictions becomes even more critical. Perpetual’s situation serves as a reminder that tax considerations should be part of the initial stages of deal-making to avoid surprises down the road.

Key Lessons for Corporations

Thorough Due Diligence is Crucial

Corporate advisors must conduct a comprehensive review of potential tax liabilities, including current and future obligations, prior to any deal. Early engagement with tax experts can help identify and mitigate any tax risks that could impact deal timelines or valuations.

Engage Tax Advisors Early

It’s vital for companies involved in M&A to consult tax professionals as early as possible. This allows for a deeper understanding of the potential implications of the transaction and ensures that all tax matters are properly addressed.

Avoiding Tax Pitfalls in M&A Transactions

The Perpetual-KKR deal illustrates how easily a tax misstep can derail an M&A transaction. With thorough tax due diligence and early consultations with tax advisors, businesses can ensure their M&A deals proceed smoothly and avoid costly delays or cancellations.

If you have M&A and corporate exist plans for 2025, book a complimentary consultation with DGMS Group.