🌟 Hello, Reader

Welcome to KSMC Double Klick, your bi-weekly briefing on M&A, finance, and AI innovation.

Let's deep dive into today’s topics.

Warm regards,
Kapil Sukhija
Founder, KSMC

📊 Deal Strategy Deep Dive

Tax Planning In M&A

In mid-market M&A across the US and Canada, choosing asset versus share purchase can materially shift seller’s proceeds on exit. Most practitioners get this in theory. Execution is where it breaks down.

The Challenge: In the US, on asset deals, buyers get a step-up in asset basis for better depreciation. A 338(h)(10) election offers similar benefits in stock deals but only for certain S-corps or subsidiaries, and it needs seller consent, sometimes resulting in a price bump for sellers.

In Canada, asset deals provide higher capital cost allowance (CCA) on stepped-up depreciable assets. Sellers resist, on both sides, as an asset deal triggers tax at the entity level, often followed by a second layer of personal tax on distributions. Canadian sellers also lose the Lifetime Capital Gains Exemption (LCGE), now up to $1.25M per eligible shareholder for Qualified Small Business Corporation (QSBC) shares under post-2024 rules, available only on qualifying share sales.

Why This Matters?

• Loss limits: US IRC Section 382 caps net operating losses (NOLs) post-ownership change. Section 111(5) of Canada's IT Act restricts non-capital losses after a change in control

• State/provincial taxes: Companies attract varying tax exposures due to multi-state or cross-provincial operations, which can create forecast errors if blended rates are used in the initial deal financial models

• EIFEL (Excessive Interest and Financing Expenses Limitation) rules: Leveraged Canadian Buyouts (LBO) deals cap deductible interest at 30% of tax EBITDA for years starting Jan 1, 2024 onward (40% transition earlier)

• Cross-border withholding: For US-Canada transactions, management fees, royalties, and dividends carry different withholding rates under the Canada-US Tax Convention

• Tax Due diligence: Cross-check tax returns against internal financials to confirm loss attributes, QSBC eligibility, and normalization adjustments. Gaps here disqualify LCGE or NOLs and unwind pricing

What Good Execution Looks Like:

• Settle deal structure before the LOI

• In Canadian deals, verify QSBC eligibility at the outset

• Confirm loss attribute usability early: Model the ownership change triggers before assigning value to NOLs or NCLs

• Run EIFEL sensitivity before debt terms are set on Canadian acquisitions

• Map withholding taxes on post-close flows upfront

• Keep tax counsel in the room through closing, not just at the start. Policy changes, late diligence findings, and SPA negotiations all create moments where the original tax structure needs to be pressure-tested again

Real life Example: A PE fund acquires a US-based industrial services business at $18M equity value. The Target carries $9M in NOL carryforwards, which the buyer models as a meaningful tax shield. Later it was discovered that two years ago the Target raised funds through a bridge equity round at depressed valuation which triggered an ownership change under IRC Section 382. Annual NOL usage is capped at equity value immediately before the change × long-term tax-exempt rate (~$200K/year). The $9M takes 40+ years to absorb, which means the expected benefit is practically gone. A tax due diligence would have potentially revealed this in a day.

Share Your Experience: Have you encountered NOL or NCL restrictions, or a QSBC eligibility gap, affecting deal structure or pricing? How did you bridge it?

🌍 Global Pulse

The UAE’s Big Bet On Gambling

The United Arab Emirates (UAE) is making a significant cultural and economic pivot by embracing the gambling industry, in an effort to diversify its economy away from oil and gas. Here’s what’s brewing:

• Construction is currently underway in the emirate of Ras al-Khaimah for a 350-meter-tall casino, which will become one of the largest in the world when it opens next year

• The country recently amended its civil code to ease restrictions on gambling. This follows the creation of a gaming regulator, which has already begun issuing licenses for online betting, lotteries, and sports-wagering platforms

• The UAE is leaning into its role as a premier destination for global travelers with money to spend. By establishing a regulated gaming environment, the country is signaling its ambition to compete with iconic hubs like Las Vegas and Macau

Implications for Investors: 

• Hospitality and gaming operators may find a rare first mover opportunity in a tightly controlled but fast growing casino market

• Banks and advisors should expect heightened AML and compliance demands on any UAE gaming related flows

• Real estate and tourism assets near early casino sites could see a step up in valuations

🤖 AI Tools Spotlight

Fellow AI: Turn Every Meeting Into Actionable Intelligence

Fellow AI is an AI-powered meeting assistant built for professionals who can't afford to lose what gets said in a room. It is a freemium tool that joins your calls, records everything, and hands you a clean summary with action items before you have even closed the Zoom window.

What The Tool Does?

• Records and transcribes meetings across Zoom, Google Meet, Teams, and Slack Huddles

• Auto-generates summaries, action items, and follow-up memos from every call

• Lets you ask questions about past meetings in plain English through its AskFellow AI agent

• Syncs notes and insights directly into Salesforce, HubSpot, Slack, Notion, and 50+ other tools

• Sends pre-meeting briefs so you show up prepared even on a packed calendar day

Why It Matters?: Meetings produce details too important to lose. Fellow AI makes sure nothing falls through the cracks. It is SOC 2 and HIPAA compliant and does not train its AI on your meeting data, which matters when the conversations are confidential.

Explore the tool here.

💭 Dealmaker’s Quote

“Being wrong is something anyone involved in capital markets has to get used to, though being used to it and being comfortable with it are two different things.”

— Bill Miller

🏢 About Us

KSMC is a Toronto-based boutique advisory firm founded by Big 4 alumni driven by an entrepreneurial and innovative vision. We provide comprehensive M&A Advisory Services, strategic CFO Consulting, and tailored Accounting Solutions. Our expertise and network spans the complete transaction lifecycle—from financial due diligence (QoE reviews) and business valuations to full sell-side mandates—serving middle-market clients across industries in Canada, U.S., UAE, India, Puerto Rico, and Botswana.

Know more and reach out to us here.

Disclaimer: This newsletter is provided for informational purposes only and does not constitute any form of advice. We do not have any sponsorship, affiliate, or commercial arrangements with any companies, tools, or services mentioned in this newsletter. All examples and case studies are based on publicly available information and are included for educational purposes only.