This document discusses trends in mergers and acquisitions (M&A) and exit planning for 2021. It first covers the impact of 2020 tax changes and provides an outlook for 2021. It then reviews M&A market trends in 2020, finding a 20% decline in deal activity and falling price multiples. The document also outlines the exit planning process and benefits of planning. It poses poll questions to business owners on their long-term goals, timelines, and definitions of wealth. The presentation encourages owners to assess their readiness by taking complimentary assessments.
6. Owners Are 16% More Likely To Sell to 3rd Party
Q. Which of the following best describes your long-term goal for your business? I plan to:
N= 9,765
48%
2%
17%
28%
6%
56%
2%
12%
23%
7%
Sell my business to a third
party.
Shut down my business. Transition my business to my
kids.
Transition my business to the
next generation of managers.
Other
Pre-COVID During COVID
Source: Value Builder System, 2020
7. 17% Drop in Time Horizon
Most Owners Plan to Sell Within 5 Years
N= 9,765
Q: How many years do you plan to continue operating your business?
33%
49%
39%
41%
2-5 years >10 years
Pre-COVID During COVID
Source: Value Builder System, 2020
8. Business Owners Definition of “Wealth” Has Changed
N= 9,765
Q: Which of the following best describes your definition of someone who is wealthy?
20%
38%
42%
15%
38%
47%
An individual with at least $10 million in
investable assets.
Having enough money saved up to cover your
monthly lifestyle expenses for the rest of your
life.
Having enough money to do whatever you
want, whenever you want.
Pre-COVID During COVID
Source: Value Builder System, 2020
9. Tax Changes and Outlook
Impact on Future Deals
9
Mary Richter, Shareholder
mrichter@schneiderdowns.com
10. RECAP- COVID-19 Legislation
Families First Coronavirus Response Act
• Wages paid 4/1/20-12/31/20
• Businesses with < 500 employees
• Paid sick leave and expanded FMLA
• Related payroll tax credits
• Up to $511 per day/$5,110 total per employee for sick leave
• Two-thirds of wages up to $200 per day $2,000 for FMLA
CARES Act
• $2.2 trillion
• Individual & Business tax relief
• Payroll tax deferral
Loans - PPP, EIDL, Main Street Lending
State and Foreign Legislation
11. Payroll Protection Program Loans
• Provides small businesses with funds to pay up to eight weeks of payroll costs, including
benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.
• Up to $10 million; Loan forgiveness available
• Up to $2 million in PPP2, additional rules (300 employee max, more expenses)
• Not taxable, expenses deductible for federal purposes
» Impact on other tax deductions and credits (199A, R&D)
» Consider which costs are included to be forgiven
» State conformity?
Impact on Financial Statements
» Shown as debt while outstanding
» Forgiveness is included in income
» Impact on debt covenants
12. Employee Retention Credit
Credit for 50% of wages paid 3/12/20-1/1/20. $5,000 max credit per employee
• Full or partial shutdown pursuant to a government order or 50% reduction in gross receipts
in a quarter
• if < 100 employees, applies whether or not services were provided by employees
• If > 100 employees, only for wages paid to employees who could not perform duties
• Eligibility period extends until get to 80% of prior-year quarter receipts
• Include health plan expenses for furloughed workers
Credit for wages paid 1/1-6/30/21
• up to 70% of wages, max $7k per quarter
• less than 80% of 2019 same quarter revenues
• 500 employee threshold for ANY payroll
CAN TAKE IF RECEIVED PPP, but not on same wages
• Cannot stack benefits for same wages as other credits
13. Other Items to Consider
• Business Interest Deduction Limitation
• Increased to 50% of adjusted taxable income for 2020
• Rules modified to include all depreciation expense in EBITDA and exclude debt issuance
costs and commitment fees from interest
• Proposed regulations for debt financed distributions
• Election to use 2019 ATI for 2020 limitation
• Impact of debt modifications? Taxable income, exclusions available
• Increased charitable contribution limits for 2020
• Employee Disaster Relief Payments - nontaxable to employee
• Excess Business Loss rules repealed for prior years, suspended for 2020-2025
• NOLs generated in tax years 2018-2020 can be carried back five years
• Elect to forgo NOL carryback (with 2020 return)
14. The Biden Administration Tax Plan
14
REPEAL TCJA COMPONENTS FOR
HIGH-INCOME FILERS AND RETURN
THE TOP TAX RATE TO 39.6%
INCREASE THE
CHILD TAX CREDIT
AND DEPENDENT
CARE CREDIT
IMPOSE 12.4%
SOCIAL SECURITY
TAX ON INCOME
OVER $400K
PENALTIES FOR
MOVING JOBS
OVERSEAS
ELIMINATE
SECTION 1031
GAIN DEFERRAL
FOR REAL ESTATE
TRANSACTIONS
INCREASE
CORPORATE TAX
RATE FROM 21% TO
28% AND ESTABLISH
A MINIMUM TAX FOR
BOOK INCOME OVER
$100M
50% REDUCTION IN
ESTATE TAX
EXEMPTION,
ROLLBACK LIFETIME
GIFT EXEMPTION,
AND ELIMINATION
OF BASIS STEP-UP
JOE BIDEN
TAX POLICY PROPOSALS
15. Impact on M&A Deals
• Due Diligence for COVID Credits, PPP loan
• PPP Loan – escrow if forgiveness has not been finalized
• Negotiate benefit for NOL carryback potential (through 2020)
• COVID impact on valuation?
Potential changes
• Potential for higher tax rates
• Potential for higher cap gains tax rates
• Reduction of gift and estate tax exclusion
• No basis step up from estate
21. How ready are you?
YOUR
BUSINESS
YOU,
PERSONALLY
Take the next step. Get your complimentary readiness assessments.
Laurie Barkman Certified Value BuilderTM Advisor, lbarkman@smalldotbig.com
Hinweis der Redaktion
Vast majority motivated by independence. Not to build the next google but to be in charge of their business.
Vast majority motivated by independence. Not to build the next google but to be in charge of their business.
Vast majority motivated by independence. Not to build the next google but to be in charge of their business.
Our second driver of a happy and lucrative exit is called "Structuring Flexibility” which describes an owner’s willingness to consider multiple exit scenarios. A lot of founders make the mistake of approaching their exit with a rigid vision of how they see their exit. They imagine an acquirer writing them an outlandish check in exchange for the keys which the owner hands them as they ride off into the sunset.
As we know, this is virtually never the case. Most founders will have to stay on to help a new owner transition into their business. The more flexible an owner is as they approach their exit — keeping all of their options open — the more buyers will be interested in exploring a deal. More buyers at the table means more competition which in turn leads to higher valuations and better deal terms for the founder which is why being flexible about how a deal is structured leads to better exits.