While the mega-mergers and acquisition (M&A) transactions get all the headlines, the number of deals in the middle market far exceeds those that make the mainstream headlines and are often targets for private equity and strategic acquisitions. An essential component of the deal process is understanding the tax consequences and the risks inherent in the transaction. This article focuses on buyer and seller tax considerations in M&A transactions relating to certain corporate sellers occurring in the lower, mid, and upper ends of the middle market.1


Firms operate in different market categories. These market categories include Main Street, the lower-middle market, the middle market, the upper-middle market, and Wall Street. While there are many variations as to how to define these categories, it is generally accepted that Main Street companies generate annual revenues of less than $5 million, lower middle companies generate annual revenues ranging from $5 million to $100 million, middle market companies generate revenues ranging from $100 million to $500 million, upper-middle market companies have revenues ranging from $500 million to $1 billion, and Wall Street consists of those companies with revenues over $1 billion and are frequently publicly traded.

From an M&A perspective, middle-market companies generally are privately owned, have fewer risks, and create consistent cash flow by providing essential services like waste management, cleaning services, and heating and air conditioning, to name a few. Further, middle-market companies are better positioned to pivot quickly, leverage innovation, and take advantage of opportunities to grow and capture market share. For the past few years, there has been a significant increase in the number of middle-market transactions.

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