Page 8 - TACC 2023 Program

8 HOUSTON BUSINESS JOURNAL FEBRUARY 24 - MARCH 2, 2023 FEBRUARY 24 - MARCH 2, 2023 HOUSTON BUSINESS JOURNAL 9

19th ANNUAL ACG CAPITAL CONNECTION SPONSORED CONTENT SPONSORED CONTENT 19th ANNUAL ACG CAPITAL CONNECTION

Investing From Texas Daniel Hoverman, head of Texas Capital Securities, talks about leading Daniel Hoverman, Head of Texas Successor Liability and Common State Tax Complexities in Purchase/Sale Transactions Paul Yoder, CPA, Tax Principal - National
Texas Capital Bank’s new affiliated broker dealer and enabling the firm
Leader State and Local Tax at UHY Advisors
Capital Securities, Texas Capital Bank
to serve clients throughout their lifecycles.
As states look for new ways more than the slightest physical presence in a state for a private equity group to address these issues proactively,
When Texas Capital Securities consumer banking and private wealth capabilities. lenders and other capital sources, Texas Capital Securities to raise revenue through tax law state to assert a nexus, since the Wayfair Supreme Court effectively taking them off the table in a future sale. A clean
launched as the affiliated broker I came on board to lead Texas Capital Securities in September has the ability to assist clients to complete underwritten and changes and increased enforcement decision in 2018, states impose sales and use tax, franchise, company will result in less leverage for the buyer to reduce
dealer of Texas Capital Bank in 2021, bringing more than 20 years of financial and legal privately placed offerings of debt, convertible and equity on out-of-state businesses, anyone gross receipt and other tax obligations using sales thresholds the purchase price or tie up sales proceeds in escrow, and will
January 2022, there was excitement experience to my new role. I expanded Texas Capital Bank’s securities, buy-side and sell-side mergers and acquisitions looking to purchase or sell a business (typically $100,000 or 200 individual transactions) known as provide some certainty related to any future indemnification
around the firm and what it meant existing syndications, hedging, equipment finance, asset- and other extraordinary transactions. We lead clients to can gain an advantage by being economic nexus. claims.
to clients. Texas Capital Bank’s based lending and related businesses while establishing Texas secure financing through asset-based and equipment aware of the latest trends in state In addition, transitory presence (by employees or Several avenues are available for addressing exposures
President and CEO, Rob C. Holmes, Capital Securities and building out a team with top-tier talent. finance solutions, and to manage rates, foreign exchange and taxation. Purchasers of companies independent contractors) in the state for the purposes of pre- or post-close:
who joined the bank in January 2021, What we are building hasn’t been done before. There has commodity risks while enabling market access through sales, should be aware of and able to delivering, installing, and performing maintenance and Voluntary disclosure agreements with states: These can
Daniel Hoverman, Head of led a celebration around our further not been a full-service financial services firm headquartered in trading and other institutional services. Paul Yoder, CPA, Tax
Texas Capital Securities, solidified ability to serve clients Texas, and we will succeed because we are already putting in If your balance sheet needs more cash and liquidity because Principal - National identify existing state tax liabilities warranty work generally has been interpreted to create nexus limit the lookback period for taxes (generally three to four
Leader State and Local
Texas Capital Bank to incorporate into pricing or set up for both sales tax and state income taxes. More recently in years), waiving penalties and sometimes interest, and are
with relevant products and services the effort, ambition and work. What is driving that momentum you’re over-leveraged, you need to fund growth, you have Tax at UHY Advisors escrow accounts to protect against response to the shift to a digital economy, the Multistate Tax particularly useful for companies that have been operating
throughout the entirety of their is a dedicated team that gets up every day and knows that as significant investment in capital expenditures, you’re thinking exposure. Sellers can take steps to Commission has reinterpreted the existing protections under for many years.
lifecycles as our new investment we deliver against our strategy, our clients and our community about making acquisitions or you’re wondering hey, what’s the
Contacting customers for sales tax exemption certificates
banking team rang the closing bell at the NASDAQ MarketSite can see tangible results. value of my company — our Texas Capital Securities products increase the marketability and price of their companies by Federal Public Law 86-272. Previously a business selling and or proof of use tax paid: This can significantly reduce potential
shipping tangible goods across state lines (does not apply to
proactively addressing existing state tax issues.
in New York City. The firm had reached a milestone: becoming As simple as the strategy appears, building a full-service and services are designed to help us be that strategic partner One of the most common misconceptions is that tax service businesses) could not be required to file state income exposures and can also be achieved by contacting customers
the first full-service financial services firm headquartered in firm takes talent, dedication, and, like many entrepreneurial who is able to deliver that type of advice and act as a trusted attributes of the seller do not affect the purchaser when taxes if their in-state activity was limited to mere solicitation. to determine whether they have self-assessed and remitted
the state of Texas. endeavors, a degree of irrational persistence. When I heard counselor to our clients. If you are struggling to address acquiring only the assets of the business. While this is true This new interpretation, which has been adopted by several use tax for past transactions or if the customer has been
The firm’s executive leadership has focused intently on what Texas Capital Bank was building and met Rob and the a challenge, we want to be your first call to help identify a
executing the strategy Rob outlined in late 2021, and the launch team building it, I knew I wanted to be part of the transformation. solution. for certain Federal income tax liabilities, state and local tax states, holds that activities conducted over the internet such audited for the past periods. Both can potentially eliminate
liabilities such as sales taxes, franchise taxes and gross receipt
the need to report/pay tax on past transactions.
as a website chat function providing post-sale support can
of Texas Capital Securities has introduced a suite of investment Leveraging deep knowledge of industry dynamics, To learn more about Texas Capital Securities, visit taxes all contain successor liability statutes that result in a create state income tax filing obligations. Often, businesses Buyers and sellers should engage experienced advisors
banking products, offerings and solutions that complement transaction structure and market conditions complemented by texascapitalsecurities.com. purchaser of business assets to inherit (and be held liable) for grow faster than the internal tax department’s ability to keep to help identify potential state tax exposures and support
and enhance Texas Capital Bank’s already-robust treasury, an extensive network of investors, buyers, financial sponsors,
any liabilities relating to pre-acquisitions years. up with new products, services, and markets, resulting in the transaction team in purchase negotiations. Proactively
significant exposures for failure to file or address these state addressing potential tax issues will put sellers in a position
TCBI Securities, Inc., doing business as Texas Capital Securities, is a member of FINRA and SIPC and has registered with the SEC and other state securities regulators as a broker dealer. TCBI Securities, Inc. is a subsidiary of Texas Capital STATE NEXUS STANDARDS AND COMMON STATE tax obligations. to set the best possible price. For buyers, being aware of the
Bank. Texas Capital Bancshares, Inc. is the parent company of Texas Capital Bank. Securities and other investment products offered by TCBI Securities, Inc. are not FDIC insured, may lose value and are not bank guaranteed.
TAX CHALLENGES issues will encourage them to seek funds for remediation of
States are limited in their authority to require out-of-state issues that will affect not only current exposures but future
companies to register and collect sales tax, or file and pay ADDRESSING EXPOSURES AND MITIGATING RISK marketability of the company. Buyers should attempt to
For anyone contemplating the sale of a business, pre-
What’s Holding Your Portfolio Company Back From Peak Performance? Aaron Martinez, M&A Integration taxes on the income of their business. This connection emptive sell-side due diligence can identify issues that may negotiate an escrow for potential exposure or – at a minimum
requirement to impose a tax is typically referred to as “nexus”.
– make sure that state tax liabilities are clearly covered by any
Luminary, Moss Adams
While the previous standards required a company to have arise in a potential transaction and enable the business or indemnification provisions.
Companies that operate with a Adaptability delivering consistently within defined systems, processes,
clear, purposeful, strategy—one Changing business conditions may always be imminent, and between individuals.
that’s understood throughout but leading organizations establish processes to fix high- Measure What Matters
the company—could outperform priority issues that they can adapt and respond to quickly. Metrics drive behavior and that ultimately impacts your INTEGRATION MANAGEMENT OFFICE – CONSIDERATIONS FOR 2023 ECONOMIC UNCERTAINTY Jawad Huessein, Vaco
their peers across metrics This strategic thinking combined with a close partnership employees and customers. Having the right metrics could
like customer loyalty, profit, with clients can allow the firm to benefit from change. mean that the company exceeds expectations, while the
and working capital. Leading wrong metrics could create bureaucracy and conflict. With rising interest rates (above can be important to understand potential red flags earlier in major considerations for determining the health of a potential
companies tend to understand Unlocking High Performance Metrics need to be carefully aligned to your broader 5.0% in 2023) and evolving the ownership cycle. acquisition, investors (particularly limited partners) may apply
Aaron Martinez,M&A their customers intimately and There are some key factors common to high-performing aspirations and how you plan to win in the market. The recessionary (or “soft landing”) Operational Excellence. Target operating models that are pressure on their general partner investments to achieve
Integration Luminary,
Moss Adams build their operating model companies. When employees are engaged and empowered, distinct processes, tools, and know-how that would allow predictions, private equity (PE) firms not scalable for future acquisitions are typically a challenge of various goals, including carbon neutrality, social impact,
around customer needs, which they take accountability and look for ways to continually your company to outperform the competition will also are considering the advantages of pre-PE-backed private companies. Building strong operational enhanced governance, and strengthened business resiliency.
empowers the organization. improve their competitive advantage. More importantly, need metrics. falling company valuations. excellence as an integration component focuses on re- Employee Turnover. Private companies often have high
successful firms have established metrics that drive the Developing metrics with your employees builds buy-in With a greater focus on immediate designing the portfolio company’s core operational model turnover. In considering startups, for example, employees
Key Areas for High Performance behavior needed in a successful business strategy. to the company strategy, creates a tangible link to daily value creation and more complex to drive efficiencies in people, process, data and technology. may join with heavy option-based compensation, but the
High performance is largely attributable to a company Engaged and Empowered Employees performance and accountability, and provides visibility deals (e.g., carveouts, large public to IT Operating Model and Costs. Numerous newly formed demands of the environment can drive them away after three
having a unified vision with goals and metrics that Indicators of a disengaged team include ineffective to overall performance. Therefore, if the company needs Jawad Hussein, Vaco private) to integrate, the importance private companies in the 2010s shifted to cloud computing to to five years (especially if there is not an imminent exit event
reinforce the right behaviors. communication, lacking awareness of company metrics, to adjust, everyone involved will know how they need to of establishing a highly effective accelerate growth without heavy upfront CapEx investment. like an IPO). Turnover management in integration planning is
Understanding Customer Value and their personal impact to the strategy. change, and how these changes could affect the next acquisition integration management Years later, many of these companies remain unable to realize a key component to ensure stability with a move to private
Customers are always sharing their experiences, but Effective companies not only trust their employees, but process in the value chain. office (IMO) is magnified. cost savings due to a lack of a strategic IT operating model. equity ownership.
not all companies know what to do with the feedback. they empower them to adapt to evolving company needs. Lessons Learned Many PE firms in 2023 may take advantage of declining With escalating cloud bills and poor cloud operating models, Finance Maturity. Opportunistic value creation by private
Prioritizing every customer interaction may be tempting, Engaged employees listen to and are involved in strategy Too often companies, fearful that change will result private company valuations to accelerate their platform IT operating model integration capability can be critical to credit companies can be leveraged to help manage cash
but few provide the insight needed to drive real customer dialog. Empowered employees take initiative. in a setback, are afraid to break with established norms. companies’ add-on strategies. In their integration planning, enabling differentiated value creation. flow. These lenders are more likely to offer lower up-front
value. Recognizing breakdowns within a disengaged team However, leading companies understand the benefit of platform companies can face value creation gaps within Cybersecurity. A sound cybersecurity posture is critical costs, given their ability to potentially convert debt to equity.
Companies that explore what truly addresses customer enables leadership to bring strategy discussions to the continuous improvements, have the discipline to challenge add-on deals in areas like finance, IT, cybersecurity and ESG, to maintaining trust with consumers, clients and partners, However, it is important to understand the “hands-on role”
pain points will be better prepared to react to future right level and focus on the employees that need the convention thinking, and are constantly searching for the making IMO essential to successfully achieving their deal and to improving operational efficiency. Privately traded that these private credit options can play in integrations, as
feedback. Prioritizing the problem your customer is biggest boost. Incorporating employee feedback into next advantage to help them get ahead of their competition. thesis. companies have often suffered delayed exits due to many are also PE investors (e.g., Blackstone, Apollo).
trying to solve for their clients is critical to developing a strategy development along with identifying customer significant cyber incidents. Publicly traded companies
sustainable, properly focused, business strategy. pain-points further engages employees with the strategic KEY INTEGRATION CONSIDERATIONS UNIQUE TO generally appreciate these factors, as they are subject to CONCLUSION
Process and Capability Alignment process. ACQUIRING PRIVATE COMPANIES greater reputational risk as fallout from security incidents. Due to the confluence of several economic factors
Highly effective organizations usually apply growth Collaboration and Accountability Aaron Martinez leads the firm’s merger management practice and has Compliance and ERP Solutions. Prior to PE ownership, Incorporating stronger cybersecurity diligence and post-deal (e.g., inflation, high interest rates, labor market tightness),
strategies through scalable systems and processes to Leading-practice companies leverage digital worked on complex business combinations including mergers, acquisitions, many private companies are challenged with less sophisticated cybersecurity integration planning can help mitigate future integrations for PE-backed deals are expected to be different
enable success. Design decisions should be centered technologies to facilitate the exchange of information carve-outs, joint ventures, and strategic alliances. He can be reached at (206) systems that result in compliance (e.g., GDPR) concerns and risks during the hold cycle. in 2023. To help ensure high returns, standing up a strong
around the customer experience and delivered across departments. This helps to identify data consistency 302-6330 or at aaron.martinez@mossadams.com. financial management inefficiencies. Building a strong IMO ESG Tracking. Historically, private companies have IMO (way ahead of deal close) is critical to deal success and
seamlessly by employees without needless workarounds. across all customer touch-points. Technology can enhance Assurance, tax, and consulting offered through Moss Adams LLP. ISO/IEC component for finance, compliance and technology planning underinvested in ESG metric tracking. As ESG factors are value creation.
Leading firms should empower staff to make real-time collaboration and enforce accountability across the value 27001 services offered by Cadence Assurance LLC, a Moss Adams company.
adjustments for a cost-effective outcome. chain. Adopting a global strategy of accountability could Wealth management offered through Moss Adams Wealth Advisors LLC.
also be helpful in determining who’s responsible for