Rising M&A Activity Elevates the Need for Tax Due Diligence

A boom in M&A deals raises a high-stakes question: How are indirect tax considerations and risks identified and addressed during due diligence and post-merger integration activities? Recent survey findings suggest that, in most cases, the answer is “not sufficiently.” Generally, conducting thorough tax due diligence during M&A integration (covering state, federal, and even cross-border obligations) is vital. It identifies hidden costs, unforeseen tax liabilities, and compliance risks that could affect both the deal’s value and the target company’s worth. Moreover, indirect tax issues such as sales tax compliance, economic nexus requirements, and unreported liabilities may be overlooked during the due diligence process, thereby facilitating improved tax planning. 

Consequently, this process includes a thorough review of the target company's tax positions to ensure compliance and avoid unexpected financial liabilities following the merger and/or acquisition. 

The nature of indirect tax’s involvement in M&A  – and in divestitures, carveouts, restructuring, and initial public offerings (IPOs) – appears less strategic than it should be, according to a post authored by my colleague, Larry Mellon, Senior Director – Global Tax . Larry cites a BDO survey report that contains a warning for due diligence teams: “Organizations that speed through pre-deal strategy to save time face a direct tradeoff: either rush tax considerations and expose the organization to risk or miss 

A boom in M&A deals raises a high-stakes question: How are indirect tax considerations and risks identified and addressed during due diligence and post-merger integration activities? Recent survey findings suggest that, in most cases, the answer is “not sufficiently.” Generally, conducting thorough tax due diligence during M&A integration (covering state, federal, and even cross-border obligations) is vital. It identifies hidden costs, unforeseen tax liabilities, and compliance risks that could affect both the deal’s value and the target company’s worth. Moreover, indirect tax issues such as sales tax compliance, economic nexus requirements, and unreported liabilities may be overlooked during the due diligence process, thereby facilitating improved tax planning. 

Consequently, this process includes a thorough review of the target company's tax positions to ensure compliance and avoid unexpected financial liabilities following the merger and/or acquisition. 

The nature of indirect tax’s involvement in M&A  – and in divestitures, carveouts, restructuring, and initial public offerings (IPOs) – appears less strategic than it should be, according to a post authored by my colleague, Larry Mellon, Senior Director – Global Tax . Larry cites a BDO survey report that contains a warning for due diligence teams: “Organizations that speed through pre-deal strategy to save time face a direct tradeoff: either rush tax considerations and expose the organization to risk or miss opportunities that cannot be recovered. Both outcomes can be avoided if tax is brought into the strategy conversation at the outset.”

What the 2026 M&A Boom Means for Tax Due Diligence

Those strategy conversations are focused on larger deals this year. Total global M&A value is currently on pace to reach $4 trillion by year’s end, which would be the second-highest combined deal value mark in the past decade, according to PwC. 

The same research also projects that 2026 deal volume will lag 13% behind 2025, which indicates a rise in larger consolidations. EY Parthenon’s July M&A activity report projects that 2026 deal volume for U.S. transactions north of $100 million will increase by approximately 8%. Deal volume and value have posted the largest 2026 gains in the life sciences, media and entertainment, consumer products and retail, power and utilities, and aerospace, defense and mobility industries, according to EY Parthenon. 

Several 2026 M&A dynamics elevate the need for tax expertise at the dealmaking table:

• Larger deals have bigger tax implications: Larger transactions tend to involve more legal entities, exposure to compliance obligations in more tax jurisdictions, and, as a result, more nexus and registration requirements. 
• Many deals are closing faster: Deals that are sourced, structured, and signed in weeks, as opposed to months, compress due diligence time frames. This makes it more important to identify all potential risks – including unclear nexus footprints, unfiled returns, and legacy tax technologies – as early as possible, ideally, during the initial due diligence that occurs before the letter of intent is signed. 
• Large buyers have larger migration to-do lists: As large enterprises pursue M&A in a “hunt for scale,” the purchasing company’s ERP environment, indirect tax automation solution, and tax management strategy (which in many companies now requires an e-invoicing roadmap)  typically “absorb” the target’s technology and processes. This creates larger, more detailed post-integration and migration work for indirect tax teams. 

What Tax Due Diligence and Risk Assessment Require

The tax group’s role in M&A due diligence is straightforward: identify the target’s tax risk profile. Executing that objective requires asking numerous questions: In what tax jurisdictions does the company generate revenue? Are any tax audits in process, and what financial risks do those inquiries pose? How does the company manage indirect tax exemptions? Are there risks related to intercompany transactions and transfer pricing? What tax automation is in place? 

That list is just a start. This Deloitte primer identifies seven overarching questions tax groups can address to help determine whether a transaction is tax-ready. 

Ultimately, inclusion is the first step to tax-ready transactions. Just as the tax function is central to ERP success, it is crucial to due diligence and post-merger integration success.