An international original equipment manufacturer (OEM) client, which also produced aftermarket parts, and an international aftermarket parts provider, which also produced OEM components, wanted to "swap" parts of their businesses so that each could focus on its core product lines. To avoid major tax implications, Quarles & Brady guided them through a "reverse Morris Trust" transaction in which our manufacturing client purchased the OEM assets it wanted from the aftermarket company. Subsequently, our client formed a new subsidiary for its aftermarket assets and distributed the stock of that subsidiary to its shareholders.
The newly created subsidiary immediately merged with the aftermarket company, allowing our client's shareholders to retain more than 50 percent of the stock of the surviving company. The transaction was tax-deferred while accomplishing the transfer of assets according to the wishes of both parties and creating a larger market capitalization for the newly merged company. The transaction later won two awards from The M&A Advisor: one for "Manufacturing-Industrial Deal of the Year" and another for the overall "U.S. Middle Market Deal of the Year."