Merger to create a larger Holdco

searcher profile

September 28, 2023

by a searcher from Texas Tech University in Ann Arbor, MI, USA

Has anyone considered or done a deal, where they merged with another business to create a larger Holdco? Not a business purchase or sale, but a merger, where both original owners continue. The benefit would be scale and a more attractive entry point for potential PE investors.. I run a dumpster rental business (franchise), and recently bought out some smaller operators to be the only brand in the region. Have some close business associates in allied fields (restoration/porta/temporary fencing rentals) and we have been toying around with this merged Holdco idea. Any insights would be helpful.

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commentor profile
Reply by an investor
from Harvard University in 150 Washington Ave #201, Santa Fe, NM 87501, USA
You can accomplish it through an equity contribution agreement. The shareholders/members of each company contribute their equity up into a new TopCo. Presumably each major shareholder joins the board of TopCo. You would need to agree on a value for each company in order to determine how much of TopCo each party gets in exchange for their contribution.
commentor profile
Reply by a professional
from Dartmouth College in Los Angeles, CA, USA
Definitely talk to a tax lawyer to see if it's possible to do a tax-free exchange under Section 368 and structure accordingly. There should be a few ways to structure the merger itself without creating multiple layers of Holdcos. Structure, valuation, and governance are the key points to iron out.
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