F Reorgs

October 25, 2023

by an intermediary from University of Florida in Nashville, TN, USA

Does anyone here have a good understanding of "F-Reorgs" and their advantages/disadvantages?

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Reply by a professional
from Boston College in Baltimore, MD, USA

A Type F reorganization is just a change in "identity, form, or place of organization." In the M&A context, it's become shorthand for an alternative pathway to a buyer obtaining a step up in basis in an equity deal when acquiring a subchapter S corporation (i.e. an asset deal for tax purposes). Transactions that previously would have been accomplished using a 338(h###-###-#### for a corporate buyer) or 336(e) election are most often accomplished these days using an F Reorg followed by a conversion of the OpCo to a disregarded entity for tax purposes. Buyer takes less risk on the original S election, fewer limitations on carry-over / rollover equity, ways to achieve tax deferral on rollover equity, etc. Happy to chat.

Reply by an investor
from Wright State University in Bellefontaine, OH 43311, USA

Tony Nitti had a great breakdown of these when he did his email newsletter. However, I can't find how to attach a PDF to a reply and I can't find it online. Essentially the advantage is that your investors get to invest in a pass through entity (to often S-Corps get busted and investment ends up being in a C Corp) and the investors get stepped up basis in the underlying assets.
Disadvantage - legal and accounting costs
Lots of specific items that might also be advantages/disadvantages but they would be specific to the deal details.

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