## Mergers and acquisitions in Illinois When a business changes hands, the deal structure can dramatically affect tax, liability, employee, and operational outcomes for both buyer and seller. ## Three main deal structures **1. Asset sale.** Buyer purchases specific assets (and assumes specific liabilities) of the company: - Buyer chooses which assets to take - Buyer chooses which liabilities to assume - Original entity continues to exist (or dissolves separately) - More buyer-protective; more seller-tax-disadvantageous - Allocation of purchase price among asset categories drives tax treatment **2. Stock sale.** Buyer purchases all (or some) of the company's stock: - Entity continues with new ownership - All assets, contracts, employees, liabilities transfer automatically - Seller gets capital gains treatment - More seller-favorable on tax - Buyer takes on all hidden liabilities **3. Merger.** Two entities combine into one: - **Forward merger** — target merges into buyer; target ceases to exist - **Reverse merger** — buyer's subsidiary merges into target; target survives - Statutory mergers triggering specific state-law procedures - Often used for stock-for-stock deals (tax-free reorganizations) ## Variations and hybrids - **F-reorganization** — purchasing entity acquires target via series of structured steps for tax efficiency - **Triangular merger** — using subsidiary of acquirer - **Reverse triangular merger** — most common public M&A structure - **Spin-off** — separating part of business - **Joint venture** — partial M&A combined with new entity - **Recapitalization** — restructuring ownership without full sale - **Roll-up** — multiple acquisitions consolidated ## Common deal-process stages **1. Strategic decision** — to buy / sell **2. Confidentiality / NDA** — protect proprietary info during exploration **3. Letter of Intent (LOI)** — outline major terms (usually non-binding except specific provisions) **4. Due diligence** — buyer investigates target **5. Definitive agreement** — purchase agreement (asset, stock, or merger) **6. Disclosure schedules** — seller details about exceptions to representations **7. Regulatory approvals** — antitrust, industry-specific **8. Closing** — execution + transfer of consideration **9. Post-closing** — escrow administration, indemnification claims, integration ## Due diligence categories - **Financial** — books, tax returns, audits - **Legal** — contracts, litigation, IP, real estate - **Operational** — facilities, suppliers, customers - **Employment** — HR records, benefits, labor issues - **Tax** — federal, state, local - **Environmental** — Phase I (and II if needed) - **IT / cybersecurity** - **Compliance** — regulatory, ethics - **IP** — patents, trademarks, copyrights, trade secrets - **Real estate** Most disputes after closing trace to inadequate due diligence. ## Key purchase agreement provisions **Representations and warranties:** - Statements of fact by seller (financial, legal, operational, IP, employment, etc.) - Survival period after closing - Cap on damages - Threshold ("basket") for claims - Knowledge qualifiers **Indemnification:** - Allocates risk for breaches - Escrow / holdback amounts - Survival periods - Caps and floors - Special / fundamental reps with broader coverage **Covenants:** - Conduct between signing and closing - Best-efforts / commercially reasonable efforts - Non-compete obligations - Non-solicit - Customer / employee retention **Conditions to closing:** - Regulatory approvals - Material Adverse Change (MAC) clause - Reps continuing accuracy - Required consents **Termination provisions:** - Walk-away dates - Termination fees - Reverse termination fees **Earnout provisions** (some deals): - Additional payments tied to post-closing performance - Often disputed ## Antitrust considerations **Hart-Scott-Rodino (HSR) Act** — federal pre-merger notification: - Required for transactions over ~$120M (2024) - 30-day waiting period - Filing fee scaled by transaction size - Possible second-request investigation **State antitrust** — separate from federal; can challenge mergers under state law **Industry-specific** — banking, insurance, healthcare, telecom, defense have additional approvals ## Tax considerations **Asset sale tax effects:** - Seller: ordinary income on inventory + depreciation recapture; capital gains on goodwill - Buyer: stepped-up basis in assets; depreciation deductions - C-corp seller: double tax (corporate + shareholder) **Stock sale tax effects:** - Seller: capital gains treatment (more favorable) - Buyer: NO step-up in basis (worse) - C-corp seller: single tax **Section 338(h)(10) election** — treats stock sale as asset sale for tax (when both parties consent) **Tax-free reorganizations (Section 368)** — stock-for-stock mergers can qualify for tax-free treatment ## Employment / benefits issues - Employment agreements may require consent to assignment - Stock options / equity plans may accelerate - Benefit plans assumed or terminated - WARN Act notice for layoffs - Non-compete agreements may need restated - Key-person retention bonuses common ## State-specific considerations - **Delaware** — preferred for incorporation; sophisticated business courts - **California** — strict non-compete restrictions; § 16600 of B&P Code - **NY** — sophisticated M&A bar; Wall Street deals - **Texas** — strong business courts; significant private-equity activity - **State antitrust laws** vary ## What you should do M&A is one of the most legally and financially complex business activities. Use experienced Illinois M&A counsel from initial conversation — many issues are baked in by the LOI stage. Most Illinois M&A attorneys offer paid initial consultations. Mid-market and lower-middle-market deals often involve multiple advisors: legal, financial / accounting, tax, valuation, investment banker. --- *This guide is general information about Illinois and federal M&A law as of early 2026 and is not legal advice. M&A transactions are complex. Talk to a licensed Illinois M&A attorney about your specific situation.*