HOLDco

Selling your company without a tax strategy in place can cost founders millions — and most don't realize it until it's too late. This episode breaks down the key tax levers every middle-market owner needs to understand before entering a deal process.

Show Notes

Tax strategy is one of the most consequential — and most frequently overlooked — dimensions of any M&A transaction. This episode of HoldCo digs into what middle-market founders need to understand about deal structuring from a tax perspective, drawing on this in-depth resource on M&A tax strategy for sellers. The core insight: what's best for your buyer's tax position is almost never what's best for yours, and the time to understand that gap is well before you're sitting across the table.

The episode walks through the major tax decisions that shape how much of your headline number you actually keep, including:

  • Stock sales vs. asset sales: Why sellers almost always prefer stock deals (capital gains rates, potential QSBS exclusions) while buyers push for asset deals to capture a stepped-up basis — and how that tension plays out in negotiations.
  • The 338(h)(10) election: A mechanism available to S-corps and certain LLCs that lets a deal be treated as an asset sale for tax purposes while remaining a stock sale legally — and why sellers may be able to negotiate a higher price to offset the added burden.
  • Earnouts and ordinary income risk: How contingent payments can shift from capital gains treatment to ordinary income depending on how post-close involvement is structured, and why the IRS scrutinizes these closely.
  • Installment sales and seller notes: How carrying back a portion of the purchase price spreads gain recognition over time, deferring tax — along with the risks if the buyer defaults mid-term.
  • Rollover equity and the "second bite": Why PE-backed deals increasingly involve rolling a portion of proceeds into the new entity, when that can defer taxes entirely, and when it can inadvertently trigger a taxable event.
  • Transaction timing: Why closing before versus after year-end can meaningfully shift effective tax rates and how much founders ultimately take home on deals in the tens of millions.

The episode closes with a clear throughline: the founders who come out ahead on tax aren't necessarily the most sophisticated — they're the ones who started planning early, structured their entity correctly, and brought in qualified tax counsel long before a formal process began. Retroactive fixes are rarely available once a deal is in motion.

For more on deal structure and the numbers behind M&A transactions, check out the episode Cross-Document Reconciliation: How to Catch the Numbers That Don't Match from the HoldCo archive.

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What is HOLDco?

An operator-led view of holding company work: acquiring, building and running durable, cash-producing businesses in the real economy. Deal criteria, diligence, integration, capital allocation, and the management questions that arrive the day after a close.

Each episode takes one decision — what to pay, what to fix first, when to keep the seller and when not to, how to fund the next deal — and reasons it through from an operator's chair rather than a spreadsheet. Written for people buying and running businesses, not spectating on them. Five or six minutes an episode.

Topics include deal criteria and screening, diligence that finds the real risk, deal structure and seller financing, integration priorities after close, capital allocation, management transitions, and running several businesses at once.

Produced by HOLD.co, an operator-led holding company. Full details, services and further reading at https://hold.co