Week of November 1, 1999
  Snapshot from the Field

KPMG's M&A Study: Hasty Facilities-Related Decisions
Are Costing Companies Millions in Tax Breaks

With today's merger-and-acquisition (M&A) mania, many companies may be making hasty facilities-related decisions that are costing them millions of dollars in U.S. state business incentives.

That's one of the findings in the "Impacts of Merger & Acquisition Activity on Facility Decisions" study recently released by KPMG (www.kpmg.com).

The KPMG study found that among 84 percent of the surveyed firms "important decisions regarding facility consolidations, expansions or both" were made "within three to six months of M&A transactions being finalized."

The KPMG study didn't find that companies are avoiding tax advice. In fact, 64 percent of the companies surveyed said they sought tax advice when planning for a merger or acquisition, and 88 percent said they found such advice "extremely valuable."

Instead, what the KPMG study found was that "a large majority of companies are not utilizing the value-added services offered by state tax consultants." For example, the survey findings included:

  • Only 12 percent of surveyed firms said they "used consulting services for advice on specific sites to be expanded or consolidated."
  • Only 8 percent "used consultants for distribution/logistics consulting."
  • Only 7 percent "sought advice on obtaining state benefits or incentives."
  • Only 6 percent "used consultants to help negotiate relocation packages."

Companies Must Communicate on Taxes
And Incentives 'Right from the Beginning"

Those low numbers indicate that many firms are moving too fast to fully capitalize on the state business incentives to which they're rightfully entitled, said Kerstin Nemec, national partner in charge of KPMG's Strategic Relocation and Expansion Services.

"Companies involved in merger or acquisition activity appear to move quickly. It is important that corporate decision-makers communicate with state officials right from the beginning in order to determine the tax and incentive impacts on the company's allocation of resources for the project," Nemec said.

"Investigating alternatives and coming up with a well-thought-out business incentive program can happen quickly, but it typically does not happen as fast as the numbers we are seeing," Nemec continued. "These results indicate companies may not fully understand the magnitude of their options and may be leaving money on the table."

Economic Development Impact: 'Increase Focus on Retention'

The KPMG study also has ramifications for the economic development side of the facility-location equation, Nemec said.

"Some of our findings confirm what many people already suspect. Merger and acquisition activity is rampant and expected to continue," he explained.

"The state and local governments are seeing significant economic benefits from this activity. Where expansion is reported, 54 percent of the companies indicated associated capital expenditures of more than US$50 million," Nemec continued. "Now is a good time for state business incentive groups to continue trying to recruit new companies, but perhaps more importantly, to increase the focus on their retention efforts."

The KPMG study also found evidence that M&A activity will likely continue at its frenetic pace. Fifty-six percent of the companies surveyed said they were very likely to merge with or acquire new firms "within the next two years." The KPMG study is comprised of the results of phone surveys of chief financial officers, treasurers or "other senior financial executives" at companies that had recently completed a merger or acquisition.

A complete copy of the "Impacts of Merger & Acquisition Activity on Facility Decisions" study is available in Adobe Acrobat® .pdf format at KPMG's Web site.



©1999 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.