4-Way Amalgamation in Canada
Complex multi-entity merger in Canada involving the simultaneous transfer of manufacturing activities to a new entity and amalgamation of four entities into one NewCo.
Situation
Following a corporate acquisition, the client had a redundant entity in Canada with employees, manufacturing operations, and sales activities. The manufacturing activities were to be moved to a newly created entity. Simultaneously, the remaining redundant entity was to be merged with three other entities, creating a new consolidated company.
Approach
A Kestrel Partners project manager was assigned to manage the engagement end-to-end. Internal team members included representatives from Tax, Payroll, Accounting (Business Unit and Consolidations), Real Estate, IT, and Record Retention. After receiving a high-level plan from the corporate tax team, Kestrel Partners operationalized the plan using its Legal Entity Transition methodology.
Key Objective
Ensure a smooth employee transition to NewCo and achieve all tax objectives while executing the manufacturing carve-out and four-way amalgamation in parallel.
Project Tracks
Payroll
- Avoid restart of CPP and EI (Canadian equivalents to FICA)
- Verify target entities for all employees
- Set up all employee data in ERP system
- Address benefit differences and transition balances between merging entities
- Evaluate scope and costs/benefits of ERP modifications for hourly payroll automation
- Ensure all regulatory registrations are complete (business number, WSIB, EHT)
- Ensure payroll setup and successful execution through first paycheck from merged entity
Purchasing
- Ensure timely setup of vendors and business partners in the new ERP system
Legal Entity
- Assess dependencies to other corporate entities
- Execute asset transfers and accounting entries
- Optimize tax credits
- Create new legal entity for manufacturing with full ERP setup
- Complete commercial registrations (Customs, business number, GST/HST)
- Review and obtain tax team approval for accounting flows
- Establish transfer pricing agreement
Finance / Accounting
- Freeze P&L and B/S activities prior to merger date
- Coordinate transition from old to new ERP system
- Transfer assets and liabilities and execute budget transfers
Facilities
- Manage building lease transitioning
- Manage service provider contract transitions
IT
- Set up SAP entity with all required modules and complete testing
- Manage stocking process (inventory, vendors) prior to go-live
- Shut down redundant plant
- Manage IT costs and cost recovery
Treasury
- Set up bank accounts with appropriate signature authority and fund operations