Significance<\/strong><\/p>\n\n\n\n

For owners of pass-through entities, the proposal to increase the capital gains rate to 39.6% on income over $1 million will be a major factor in considering whether or when to sell their business. In the M&A space, the sale of a business is taxed at a capital gains rate. And with this proposed increase, which would be the largest increases in capital gains rate history, dealmakers and business owners may be discouraged to sell. However, the businesses that are not entirely deterred from selling can possibly benefit from greater tax savings now if a sale agreement is closed by the end of this year. Installment sales made in the year 2020 will have their taxes reflect the tax policy of this year, but will then have the remaining installments reflect Biden\u2019s tax policy (if the election is in his favor) in the latter years.<\/p>\n\n\n\n

In contrast to businesses that are reluctant to sell\/buy, researchers and economists have found that an increase in capital gains taxes has led to the selling of stocks.  An impending tax increase might ignite activity as owners seek a tax-efficient business exit.<\/p>\n\n\n\n

Either decision, to\nsell or not to sell, and to buy or not to buy, will come with its own pros and\ncons. <\/p>\n\n\n\n

***   These changes in Biden\u2019s proposed tax policy will likely only become law if both<\/em> the Senate and House of Representatives have a Democratic majority and<\/em> they agree to the bill  ***<\/p>\n\n\n\n

Influence of COVID-19 <\/strong>on M&A Deals<\/strong><\/strong><\/h3>\n\n\n\n

While mergers & acquisitions were just short of a complete\nstandstill in March of 2020, the M&A outlook is robust.  The potential upcoming change in tax\nlegislation, coupled with the turbulent and ambiguous economic environment due\nto the coronavirus crisis, are changing the manner in which M&A deals are\ndeveloped and negotiated. Overall, sellers are claiming that 2020 operations\nare not indicative of the business\u2019s history, while buyers, in contraposition,\nare concerned businesses will not return to normalcy in the coming future.  Both sellers and buyers are adjusting to the dynamic\ncircumstances to mitigate their business risks with changes to dealmaking and deal\nterms including:<\/p>\n\n\n\n

• Deeper due diligence will be performed.<\/li>
• Strategic earnouts provisions will be negotiated in deals.<\/li>
• More complex escrow, holdbacks, working capital, and other price\nadjustment provisions will be proposed.<\/li>
• Installment sale transactions will see gains taxed at different\nrates in 2020 and 2021.<\/li>
• Modifications to pre-closing business covenants, representations\nand warranties, and material adverse provisions will be proposed;<\/li>
• Alternative forms of considerations and changes to terms of debt\nfinancing.<\/li><\/ul>\n\n\n\n

  Final Remarks<\/strong><\/h3>\n\n\n\n

  There is much on the line as the\nNovember 3^{rd<\/sup> election date inches closer, but if one thing is\ncertain, it is that middle-market companies need to:<\/p>\n\n\n\n}

  • Be proactive and develop a comprehensive M&A plan that is reflective of either a Biden or<\/em> Trump tax policy. If contemplating a sale, start planning TODAY;<\/li>
  • Know how COVID-19 will affect their particular industry and how market conditions may influence them;<\/li>
  • Organizes a team of advisors;<\/li>
  • Compute your net proceeds from a business sale after taxes to ensure you are receiving the net proceeds from the sale that you desire.  <\/li><\/ul>\n\n\n\n

    Despite the outcome, M&A will\nfind a way to continue marching on. <\/p>\n\n\n\n

    For more assistance on any of the topics mentioned above, please do not hesitate to contact our team of M&A Specialists.<\/p>\n\n\n\n

    Source: Tax Foundation<\/a><\/p>\n\n\n\n

    <\/div>\n\n\n\n

    Contact usw<\/a><\/div>\n\n\n\n

    <\/div>\n\n\n\n

    Today’s Thought Leaders<\/strong><\/p>\n\n\n\n

    Contact us today by calling 301-585-0506.<\/tcxspan><\/strong><\/p>\n\n\n\n

    <\/div>\n\n\n\n

    <\/figure>

    \n

    About Tessa Lucero-Bennett<\/strong><\/h3>\n\n\n\n

    Senior Manager, CPA, & MBA<\/strong><\/h4>\n\n\n\n

    Tessa is a Senior Manager at Ryan and Wetmore. Tessa has over 20 years of experience serving and advising businesses in all phases of the organizational life cycle.  Her experiences range from traditional accounting and tax services to complex consulting services, including business planning, financial budgets and projections, benchmarking and financial trends, M&A support and analytics,  internal controls assessment, development of best business practices, and financial training for top management levels. <\/p>\n<\/div><\/div>\n\n\n\n

    <\/figure>

    \n

    About Pete Ryan<\/strong><\/h3>\n\n\n\n

    Co-founder & Partner<\/strong><\/h4>\n\n\n\n

    Peter T. Ryan co-founded Ryan & Wetmore in 1988 with business partner Michael J. Wetmore. Peter provides clients with the best strategies for success. His expertise extends across various industries, including M&A. Peter obtained a Master of Business Administration in Finance from the University of Baltimore and a Bachelor of Arts in Accounting from the Catholic University of America. <\/p>\n\n\n\n

    Read Pete’s full bio<\/a>.<\/p>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"

    It is no question that the election will influence the M&A landscape, but how it will change M&A activity is the real conundrum. <\/p>\n","protected":false},"author":2,"featured_media":80155,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"","neve_meta_content_width":0,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","_themeisle_gutenberg_block_has_review":false,"_ti_tpc_template_sync":false,"_ti_tpc_template_id":"","footnotes":""},"categories":[4],"tags":[376,41,196,184],"class_list":["post-73873","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-information-technology","tag-ma","tag-tax","tag-tax-cuts-and-jobs-act","tag-tax-news"],"yoast_head":"\n