How Will Tax Reform Impact M+A Activity in the US?

Posted by Dave Richards, Managing Partner on Jul 10, 2018 8:39:48 AM
Dave Richards, Managing Partner
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The recently passed Tax Cuts + Jobs Act (TCJA) includes changes that impact almost all aspects of the current tax system. Some of these changes will also directly impact the volume of mergers and acquisitions (M+A) we see happening across the country in the near term, as well as the way deals are modeled and negotiated.

The outlook for domestic private companies is good – here are the top 3 reasons why:

  1. Lower corporate tax rate.
    One of the biggest TCJA changes impacting the corporate world is the reduction of the corporate income tax rate, from 35% to 21%. In terms of M+A activity, this has implications for both buyers and sellers. Lower taxes mean that companies will have more cash on hand, putting buyers in a better position to make investments. This increase in liquidity and borrowing capacity also means that buyers can more efficiently acquire an entire company and sell off any pieces that they don’t want, making portfolio restructuring and divestitures a more attractive option for sellers.

  2. Repatriation of overseas cash.
    Another big headline from the TCJA is the mandated repatriation of previously deferred overseas profits, at a one-time tax rate of 15.5%. This means that US Multinational corporations will be able to access their overseas cash at a lower tax cost, putting them in a better position to acquire new business.

  3. Immediate deductions.
    Under TCJA, companies can now immediately deduct 100% of expenditures on new and used qualified property acquired and placed in service through the end of 2022. With lower short-term tax obligations for acquired asset costs, sellers – especially in equipment-heavy industries like construction or manufacturing – will look more attractive and be more attainable for buyers.

Private US companies were already receiving more attention from global buyers due to the steady economy. In light of these tax changes, they’ll also be more attractive to domestic buyers.

To prepare, private business owners hoping to sell should position themselves now, by creating a strategic plan and conducting their own internal due diligence to value and market their company. By preparing early, you’ll give yourself the best chance of realizing the highest return on your life’s work.

If you have questions on how to prepare for the sale of your business, or how these changes will impact your company, leave a comment down below or feel free to contact me directly - I'm happy to help! You can also learn more about the process of selling your business in my recent Transaction Advisory blog posts.

Topics: Business Advisory, Acquisition, Transaction Advisory