Trending in Transactions - Q1 2025
In this issue
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Employee benefits
Enrollment and recent retirement plan legislation
Recent legislation requires that all new 401(k) plans provide automatic enrollment for all eligible participants. However, plans “established” before 2023 are generally exempt. In the mergers and acquisitions (M&A) context, companies are encouraged to consider how an existing 401(k) plan will be treated in the transaction and the effect on exempt status. Separately, a new generation of benefits litigation is evolving that challenges how 401(k) plans use forfeitures of unvested participant accounts to fund future employer contributions. In the deal context, it's often important to review a target’s use of plan forfeitures to assess any potential liability.
Executive compensation and equity
Transaction considerations for incentivizing employees with equity awards
By Keith Ranta
The treatment of outstanding equity incentive awards, such as stock options and restricted stock units, is often a key term in negotiating the sale of a company. While equity incentive awards dilute the proceeds payable to other shareholders, companies frequently use them to incentivize and reward employees for contributing to the completion of a successful sale transaction. Companies are encouraged to consider the treatment of awards as early as negotiating the letter of intent for the transaction, particularly if the seller desires to accelerate the vesting of awards. Some buyers may prefer to assume outstanding unvested awards so that they continue to vest post-closing to promote retention, while others may choose to cash out awards and start over with new grants issued by the buyer. There are potential tax issues to consider if parties change the terms of the awards or cash out the awards over the original or a new vesting schedule. Companies are encouraged to review equity incentive plan and award agreements to confirm the treatment of the awards negotiated by the parties can be accomplished without the consent of the award holders, which could delay closing.
Tax
Tracking the Trump Administration's tax policies
By Kurtis Weaver and Molly McBride
In recent weeks, President Donald Trump has issued multiple Executive Orders (EOs) aimed at prioritizing American interests in international tax and trade, as well as challenging foreign tax measures that the Administration deems inequitable and disadvantageous to American companies. In particular, these EOs suggest that the Trump Administration could seek to disallow tax credits to US taxpayers on a go-forward basis for income taxes paid to China (potentially serving as a deterrent to Chinese investment in the US) and further signal the Administration’s possible intent to challenge foreign tax measures that are considered discriminatory or otherwise undermine the global competitiveness of US businesses. Coupled with newly imposed (eg, Canada and Mexico) or, in some cases, increased (eg, China) tariffs on foreign trade, such orders demonstrate the Trump Administration’s continued commitment to its “America First” policy. Although the impact of these EOs on the broader tax landscape continues to develop, updates in this area may have significant implications for US taxpayers intending to engage in M&A transactions, and both buyers and sellers are encouraged to seek timely legal counsel in tax and deal planning.
Employment
Enhanced immigration enforcement efforts call for focus on workplace compliance
Workplace immigration compliance in the M&A context is increasingly topical amid the Trump Administration’s enhanced immigration enforcement efforts. While businesses in certain industries may face increased scrutiny from US Immigration and Customs Enforcement (ICE) for workplace inspections and/or I-9 audits, an increased percentage of companies are expected to be selected entirely at random. As such, employers – especially those preparing to undergo a sale process – are encouraged to proactively review and audit their Form I-9 records to identify and correct any errors (following US Citizenship and Immigration Services guidance regarding internal I-9 audits and documenting updates accordingly) and ensure that their related internal processes are compliant with federal law. Likewise, buyers in an M&A process are encouraged to pay particular attention to workplace immigration compliance in connection with their legal due diligence of a target, including through an assessment of employees working in the US on a visa or work permit and compliance with Form I-9 requirements.
Insurance
R&W insurance market navigates differences in claims handling practices
By Nia Brown and Nate McKitterick
The representations and warranties (R&W) insurance market is experiencing notable differences in claims handling practices among various R&W insurers. While all insurers continue to regularly pay claims, including those reaching policy limits, some claims are facing significant processing delays due to the increased volume of claims. To help expedite processing, companies are encouraged to retain an experienced broker with market leverage. And, for each deal, companies are encouraged to ask their brokers to advise on claims experiences with their lists of quoting insurers, and determine the most suitable insurers. Click here for more tips on how RWI adds value to the transaction process.
