How to integrate charitable giving into merger and acquisition planning

Mergers and acquisitions (M&A) remain an important feature of today’s corporate and investment landscape. While the pace of M&A activity has shifted in recent years, it continues across sectors, driven by strategic growth, portfolio repositioning, private equity, and emerging technologies. Economic uncertainty, evolving capital markets, and regulatory scrutiny are shaping how—and when—transactions occur, without eliminating deal activity altogether.

Against this backdrop, many advisors are working with clients to assess how evolving M&A conditions may intersect with broader financial and charitable planning considerations. Keeping a close eye on your investments and being proactive about planning for a potential M&A event can help you act deliberately if and when a transaction moves forward.

Why tax-efficient charitable planning matters during M&A activity

You’ve likely observed ongoing M&A activity across industries, with announcements often arriving quickly and progressing on compressed timelines. If you own stock in a target company or in a company involved in a merger or acquisition, a potential forced capital gain and/or appreciation may come your way as a result of the deal. But it’s important not to overlook the tax implications that may accompany a liquidity event, particularly in all-cash deals.

Charitable giving opportunities are often missed at this stage, yet donating appreciated assets to charity can represent one of the most impactful planning strategies available during an M&A event. However, timing is critical. Successfully navigating charitable giving in an active M&A environment requires thoughtful consideration of when and how to give so that the tax consequences do not erode the value you’ve built.

Timing charitable contributions ahead of a liquidity event

For example, let’s say it’s announced this year that Company A is being acquired by Company B for $100 per share, pending shareholder approval. The shares you own in Company A have significantly increased in value from when you originally purchased them for $20 per share over a year ago. As a charitable-minded investor, if you plan to donate your appreciated stock before the transaction closes, you may be able to meet your charitable goal while potentially eliminating the capital gains tax.

So are you prepared to make strategic philanthropic decisions amid fast-moving M&A announcements? Consider the following M&A checklist to guide you:

Review your holdings with the help of your trusted advisor

Whether you’re an insider, an employee, a founder, or an investor, an advisor can help you evaluate charitable strategies in the context of your overall financial portfolio, including the possibility of donating public and private stock, cash, and other assets.

Understand any restrictions on transfers

If you’re an affiliate of the company, it’s crucial to not run afoul of insider trading violations. Affiliates and insiders may be subject to limitations prior to a transaction’s completion, and compliance with company policies and applicable regulations is essential.

Be clear about your charitable goals and timing, especially if giving back is a priority

Without proper planning, some M&A deals could result in full recognition of capital gains. If you learn of an upcoming transaction before the shareholder vote, you may have the option to donate stock, subject to the transaction, and potentially qualify for a fair market value charitable deduction, subject to IRS limitations.  It’s always a good idea to consult your tax advisor before employing this tactic.

If you only consider charitable strategies after a transaction is complete, you still may be able to offset the tax consequences by making a charitable donation with cash or an asset before year-end.

Consider using a donor-advised fund to support your charitable giving over time

When an M&A event results in unexpected income, a donor‑advised fund (DAF) can be a compelling alternative to giving directly to charities with after‑tax dollars. A DAF is a program sponsored by a public charity that allows you to make an irrevocable charitable contribution of the stock before the event. Doing so gives you an opportunity to take advantage of an immediate tax benefit by claiming an income tax deduction generally equal to the fair market value of the donation. The IRS will require you to obtain a qualified independent appraisal in certain circumstances. You can then easily recommend grants to multiple charities over time.

Plan ahead for future M&A-driven charitable opportunities

Will you experience a significant capital gain from an upcoming M&A event? Preparing now allows you to take a proactive approach to a time-sensitive opportunity, potentially reducing your tax liability while allowing you to support your favorite charitable causes today and into tomorrow.

The tax information provided is general and educational in nature and should not be construed as legal or tax advice. Fidelity Charitable does not provide legal or tax advice.