Perspectives

Business owners have had more than enough to think about already in 2020. Needing to quickly adjust to COVID-19 challenges, managing a remote workforce, or pivoting strategy on a dime has challenged many leaders in a few short months. With business triage now behind us, many owners have started looking towards the future and reassessing their priorities and long-term objectives. A presidential election, the largest stimulus package our country has ever provided, and national debt that is now greater than 100% of GDP create an expectation that tax rates could go up in the foreseeable future.

Every four weeks or so, my dad would take me and my brother to the barber for haircuts to give my mom a morning to herself (something I didn’t appreciate at the time).  This was also our opportunity to visit the baseball card store.  At some point, the focus shifted from packs of cards to the Beckett Baseball Card Monthly pricing guide, a listing of the market value of every baseball card.  For $2.95 you could look up every card in a collection and see the monthly movements in card prices and put a value on a collection.  I remember sitting on the bedroom floor looking up the value of a Rickey Henderson rookie card for the 100^th time when my dad walked in and gave me one of those great dad life lessons.  I was excited to tell him the card is up $1 from the prior month, and he said “That’s great, but unless you are going to sell it, the value today doesn’t matter, and even then, it’s only worth what someone is willing to pay.”  Amazing how our parents get wiser as we get older.

Fortunately/Unfortunately for business owners, there is no Beckett guide for private companies.  The value a buyer is willing to pay depends on a multitude of factors, too many for this discussion.  However, in this uncertain environment we are in and will continue to be in for the foreseeable future, having an experienced advisor that can help position the company’s financials will be key to optimizing valuations.  

We are all living in a very different world than just a few short weeks ago.  The recent volatility and declines in the public markets, coupled with the anticipated federal stimulus packages, doesn’t give business owners much to feel good about right now.  However, we learned from the 2008 downturn that this period of time will be a significant focus area for buyers years after this is all behind us and presents a handful of opportunities that private business owners can take advantage of to put themselves in the best possible position when the time comes to pursue a transaction.

Much has been written recently about the new tax code and impact it could have on M&A.  I have read over a dozen articles that all start the same way: 

• Corporate tax rate is declining from 35% to 21%
• Corporate alternative minimum tax is repealed
• One-time repatriation at a lower tax rate will be permitted
• Immediate depreciation of new and used assets

Chris Nicholas is interviewed by Mergers&Acquisitions and discusses the current state of the M&A market and its forecast.  The full video can be found here.