Name: Live Webinar: Strategies for a High-Value Company Sale in Today’s M&A Market
Uploaded: 2025-05-22T15:16:09.564Z
Duration: 1 h 12 s
Description: Live Webinar: Strategies for a High-Value Company Sale in Today’s M&A Market

Transcript for "Live Webinar: Strategies for a High-Value Company Sale in Today’s M&A Market": Good morning, and welcome to our webinar, strategies for a high value company sale in today's m and a market, hosted by PKF Investment Banking. Before we get started, I'd like to go over a few housekeeping items so you know how to participate in today's call. We are pleased to offer live closed captioning throughout the webinar. To access the captions, please use the stream text link located in the chat section of your attendee panel. You will have the opportunity to submit text questions to today's presenters by clicking on the q and a tab on the right hand panel. You may send in your questions at any time during the webcast. We have a lot of material to cover, and if time permits, we'll make an effort to respond. If we cannot get to your questions, a response will be sent post event. A copy of the PowerPoint slides and a recording of today's webinar will be made available to you via email within four business days. As we near the end of the webinar, we do have a very short survey which will be prompted, and your response is greatly appreciated. At this time, I would like to introduce Robert Murphy, senior managing director of PKF Investment Banking. Robert? Thank you, Alana. Good morning, everyone. Thank you for joining our webinar this morning. We will plan to wrap up by 11AM and hope to leave ten or fifteen minutes at the end for questions. Our goal today is for everybody to leave this webinar with some additional insights into the current m and a market, some thoughts about maximizing sale value, and tax items to consider in structuring a, sale of the company. So, again, I'm I'm Robert Murphy. I head up investment banking. I have about thirty years of m and a advisory investment banking experience. Prior to that, I was a senior corporate development officer for a public company and also spent several years as a CPA with one of the international firms. Joining us, this morning and I'll let Alberto introduce himself with the investment banking group. Yeah. Thank you, Robert, and, good morning, everyone. Appreciate, everybody's taking the time to attend our webinar. My name is Alberto Sinesi. I'm a director with PKF Investment Banking. I've been in the investment banking world and specifically M and A advisory, for close to fifteen years now. Really focused on middle market M and A transactions. And, prior to joining PKF, I worked for over a decade at a, major investment banking firm really focused on m and a transactions, both in, North America and in Europe. Christopher, you'd like to introduce yourself? Hi. Christopher Migliaccio, Packard Park here for m and a one. I've got fifteen years of experience working with transactions from very, very large multinational, complex transactions down to, the sale of a small business. And so, we'll be assisting, and I'll be joining, Robert and Alberto to talk about some of those tax considerations and transactions and how they can play into getting to, the right team. Thank you, Christopher. So the the agenda for today, topics that we're going to, going to cover. We'll do a quick firm overview. Promise only take a minute or two to cover that, and then we'll dig right into the m and a activity levels, especially focusing on 2024 and 2025. We'll look at the current m and a drivers and trends and, outlook for the rest of the year. We'll talk about how we look at and address timing in looking at, the best timing to go to sale for a particular, company and business owners. We'll look at some key pillars for maximizing sale value, and then Christopher will get into talking about some pre transaction tax planning and tax structure. So so investment banking is part of PKF OConnor Davies. PKF OConnor Davies is a, large accounting advisory firm with over 1,700 professionals, over 200 partners, and 19 offices, and also part of an international network, PKF International, that includes resources in over 400 cities globally. So very quickly, so PKF Investment Banking, we are really focused on m and a advisory. 90% of our engagements are on the sell side with privately owned, family owned companies. About 10% of our engagements are on the buy side, helping a company acquire another company or do a a, a full buy side search. The team that we have collectively have closed over 300 transactions in our careers. Our clients tend to be anywhere from 10,000,000 to 300,000,000 in revenue in multiple different industries, including business services, consumer products and services, distribution logistics, industrial services and manufacturing, medical equipment, and software and IT services. So let's let's jump right into the m and a activity. So this chart here shows the closed m and a transactions in US and Canada. So starting over on the left, and and it shows it quarterly for each year. So starting over on the left is 2021, '20 '2, '20 '3, and then quarterly into '24 and the first quarter of twenty five. So I think everybody on on the call probably remembers if they're involved in the m and a market at all that 2021 was a record year by far. It was really a perfect storm with almost 22,000 transactions closed. The twenty two year was a very strong year with almost 20,000 transactions closed in US and Canada. And let the latter part of '22 is when the headwinds started, and those headwinds really ramped up in 2023, and the headwinds of of increased interest rates, inflation, recession concerns, geopolitical issues. And so the 2023 year, there were approximately 17,000 transactions closed, so about a 13% decrease from 2022. So now moving into 2024, what you'll see if you look at the first quarter with 4,350 transactions closed, and then the second and third quarter with about 4,400. So what you saw there was a bit of an increase off where the last six months to '23 ended and pretty much a consistent level of 43 to 4,400 transactions closed each quarter and then a bump up in the fourth quarter. So based on and these are estimates because not all the transactions, of course, are re are all reported and reflected yet. So we are looking at the 2024 year when everything is reported to be almost 18,000 transactions, which is about a 4% increase over 2023. And then moving into the first quarter of this year, based on what's been reported through the April, we believe that the first quarter of this year, and and it was a strong quarter, but when it's finally reported, it will be pretty much on par with the last quarter of last year. Perhaps a little higher, a little lower, but roughly around 46 to 4,700 transactions. So a few slides later, we'll come back and talk about some potential scenarios of how the rest of 2025 could play out. Wonderful. Thank you, Robert. Let's talk about, recent market developments. And where I would like to start is really with, the period that goes from the February through the March. All market players and certainly investment bankers out there really started the the year on a on a positive note with strong sentiment around increase in overall M and A activity and certainly a, a rebound in private equity activity both from an exit standpoint, so from a realization standpoint as well as from an acquisition standpoint, with specifically platform acquisitions, all of this being supported by a business friend administration and certainly the perspective of declining interest rates, going forward. Now q one was in fact a a a strong quarter, similar levels as the the latter part of 02/2024. Now then something happened, and that was Liberation Day, 04/02/2025, where, tariffs were announced on a on a, frankly, global global scale. And that triggered a a number of different effects and repercussions. One, just being the, elevated uncertainty levels across the board. Just the lack of visibility in terms of, trade policies and how the tariff policy will impact, the different sectors in the market. And then more holistically, let's say lower consumer confidence levels and as well as uncertainty around the g, economic situation, right, with the inflationary pressures as well as recessionary pressures being, being considered. Now all I'm about to say is pretty much, sector specific. In other words, tariff implications may have different, impacts based on the sectors, of the company or companies operating. But I'd say, generally speaking, q four or q two has been, has been a softer quarter thus far based on, preliminary data points as well as conversations that we have had with market players. So once again, slowdown in in deal closing thus far, starting, in April 2025 and, certain deals that were already in the market being put on hold. Several of those were certainly tied to this whole discussion around tariff implications. And then there is other deals that were supposed to be brought to market, right, being showed to potential investors and acquirers that have been delayed in the context of a, reassessment of the situation. An interesting, piece of evidence here is just the increase in, in in the level of, of scrutiny that certain transactions are going through. Right now, we're Robert and I are working on a on a deal, which isn't even impacted by by tariffs. We have, a 40, NDAs being executed and and and potential acquirers are really, really digging deep into into diligence even before submitting a preliminary nonbinding offers. The first time in fifteen years that I've had somebody ask me to provide the financials for the past twenty five years of performance on a company. So once again, people are are are being very cautious, when it comes to, diligence in an asset. And then last thing I'll say here is the consideration structure with a renewed interest in, in an earn out component by potential acquirers just in the, as a way to mitigate those, those concerns around, tariffs. But, once again, moving on to to the next page, all I said before is really situation specific and is sector specific. There are certain industries that have continued to be resilient in terms of, number one, company performance, and number two, just in general, m and a, m and a appetite and, and activity. Now as you can see on this page, these sectors, are a bit all over the place, but they all share certain certain traits that make them attractive to potential acquirers, especially in the current environment. So So if you think of, tech enabled health care business services as well as financial service and fintech, once again, those are asset light, right, type of business models. Most of those companies do have an inherent, revenue business model that is, tied to, a subscription type of service or sufficient based type of service, which makes them attractive in the sense that they have visibility into future performance, right, that mitigates some of the some of the, some of the concerns out there. And then you have a vast area of, of services that are not necessarily tech enabled, but they are recurring or reoccurring in nature. And, they are part of, industries that are, fragmented and are undergoing a consolidation wave. So let's think of aftermarket services or HVAC services, everybody's talking about HVAC services or landscaping, roofing, fire prevention services. So all of these services are somewhat necessary in a sense that they protect an asset of value, whether it's a house, whether it's a piece of equipment, whether it's a car. Some of them, like in case of fire prevention, they're they're regulated. Right? And so they are attractive to somebody who is thinking of pulling companies together, consolidating them, and then at some point selling them down the line. And then the other area which remains very active is this whole area of, of sectors or subsectors within consumer that are tied to secular, long term tailwinds. So let's think of this whole concept of taking care of your own body, taking care of your mental health, so health and wellness services, VMS, meaning vitamin, mineral, supplements as well as ingredients. Needless to say, food in general and certain categories within food remain very robust, just because food is something that everybody needs and, it's inherently a, counter cyclical type of, type of sector. Let's think of bakery just to made to name one. Bakery is considered a low cost, indulgence, if you will. Right? So that is something that has, certainly mushroomed over the past few years in terms of M and A activity. So once again, depending on where you are, you have different considerations. The one the the couple consideration I would mention though are the following. Number one, there's a shortage of really good quality assets out there. This is based on many conversations we have had with parties. And number two, if you are a NAE asset and you do display some of these characteristics, I think this is a great time to be in the market. Just because for businesses which do possess these attributes, valuations remain or have remained incredibly strong. So all of this to say that it's an interesting market and it's certainly fluid in, in nature. Thank you, Alberto. We couldn't in today's market, we couldn't have a conversation about the m and a market without having at least one slide on tariffs, which we've already kinda touched upon. But as we all know, it's created a lot of uncertainty in the market, which is which we've seen not only in the stock market, but but now with the m and a activity, and it really creates a lack of clarity with future results. Right? We really don't know where tariffs are gonna be in thirty days or sixty days from now and and how long it's gonna take for everything to kinda be sorted out and and settled down. And and it's it's clearly been a big disruption to companies that are impacted by tariffs and especially those companies that have a complex, supply chain like aerospace, automotive, electronics field. As we talked about, the due diligence has been, elongated. If it's if it's terror impacted company, there's a a lot of time spent on on what the current impact is, what it could be in the future, how that can be mitigated. And as we said, some time is is leading to part of the consideration getting structured in an earn out because of that, that lack of clarity, lack of visibility. But once again, it's it's very deal specific. So, we've got a a transaction right now that that is in market that really has very minimal impact even though it's a manufacturing company because over 90% of its sales are to customers in The US, and over 90% of their raw material purchases are being manufactured and procured here in The US. So once again, it is just very company specific. And one other thing I'd like to mention, and and, again, I'm looking at the left side of the slide where where we're talking about impacts, is a lot of times I don't see people talking about the positive impact. So once again, certain companies could have a pickup. So they may have a customer, where that customer is also buying product or components from a foreign, from a foreign vendor. Right? And so there could be opportunity for that customer to move more of their buying to a US customer. Or it could be a a new customer that gets secured because that customer is is looking for for a US supplier. So there are opportunities clearly, on the positive side. So just the right side here are some different considerations we listed that, any company that can be impacted by tariffs should be considering. Right? So the first thing is just mapping out what your vendor purchases look like. Okay? Where are those where are those vendors located? But more importantly, even if that vendor is located in The US, are they getting materials from outside the country? What's their impact? And is that gonna flow through in in higher prices? Evaluating, alternate sauces for your, either your finished goods or your components or your raw materials, from places that have no tariff impact or have less tariff impact, taking a look at your customer contracts and evaluating whether you'll be able to pass along those tariff impacts, whether you'll be able to get some of the vendors to to eat that cost or to at least eat part of it. So it's all really just understanding what the current situation is for that company, what some mitigating factors can be, and trying to quantify what that financial impact can be. And if you are going to market with that company, making sure you've crafted a clear story and be ready for very thorough due diligence process. Thank you, Robert. Yeah. Let's talk about, a few scenarios here we try to, model out here based on the past and certainly taking into consideration some of the positive market drivers that are still out there, and they are important. So, left hand side of the page, completed transactions in 2,024. We are familiar with this, chart, but as you can see, q four was a, was a quarter of of strong rebound. Right? The 02/2024 closed, we closed to 18,000 transactions, being being consummated in The US and Canada. Now what are these positive market drivers that, will certainly, have a an impact on on the outlook of the m and a activity, level going forward. So couple of data points here. 1.4, trillion dollars in, in dry powder, and that is across different strategies. So that could be, buyout funds, that could be venture capital, growth capital. Right? So there's a tremendous amount of money that is just sitting there and is ready to be deployed. Right? And it has inherently an opportunity cost embedded to it. Big data point here, $3,500,000,000,000 of, of cash sitting on, non financial corporations here in The US, meaning, known banking institutions and no, non insurance firms. Right? Once again, enormous amount of cash. Right? And, this cash is, to a certain extent, also being used to to do m and a. Right? Certainly not a good thing to have just, have cash sitting on the balance sheet, forever and sitting idle. Right? And then what we see here more and more, so it's just, baby boomers, right, interested in, in a liquidity event. 12,000,000 of privately held businesses owned by by baby boomers. The other consideration, which is not necessarily on this page, but more and more so, you have younger generations of entrepreneurs who have started the business with, the intent of not necessarily keeping it for decades, but, but to to sell it down the line. We've seen that particular dynamic happening more and more often. And then going back to some of the private equity considerations we had mentioned before, tremendous pressure on private equity firms to return and deploy capital. That's why, some, observers in the market may have seen a pickup in dividend re cap activity and or, continuation vehicles. Right? It's an opportunity for, limited partners to take back a portion of the capital they invested with that particular fund or specific assets. And then more in general, from an economic standpoint, expected deregulation and then, the hope of a a, let's say, a a more positive interest rate trajectory here with, with cuts. So all of this to say is that, we modeled out, three different scenarios here. You can see the middle of the page, basically through the remainder of 02/2025. So if you look at the chart in the middle of the page, so the base case scenario, what we portraying here is a, q two of 02/2025 with decreased activity in line what we have just, discussed, and then a gradual pickup in deal count through the rest of the year with ultimately a total deal count, through 02/2025 and around 18,000 transactions. So pretty much much in line with 02/2024. Then there's a downside case wherein, M and A deal count continues to decline over time, and the, total deal count, lands at around 16,600 transactions. So, certainly, south of where we were, last year, and frankly disappointing as compared to how we started the year. And then the upside case, is one where, let me put it that way, clarity, unfolds here and, and market players do get more comfortable with the macroeconomic environment we're living in and some of the trade policies and then m and a, gradually picks up and, really, lands at around 18,500 or 600 transactions through the remaining of the year. So, again, nobody knows here, but, we feel like we should be in essentially the band, that we are portraying here through the rest of the year. Now the the next page is really just more to support some of the data points Hey, Alberto. Yes. Alberto, could you just go back to that slide for a minute? Yeah. Please. You know, I I just wanted to add as Alberto said, the these are just kinda scenarios for discussion purposes. Right? Not detailed projections. But I think a lot of it's gonna hinge on when the tariffs get sorted out. If if the tariffs really, I think, get dragged out to the fall and things aren't settled, then I think it's gonna be a a bigger impact to the markets and a higher chance of perhaps a recession, and we really could maybe be looking more at the downside. If the tariffs, I think, can get sorted out sooner, then I think maybe that upside case, could be a lot more of reality. And, you know, just to parallel back to the COVID year of 2020, now once again, the COVID year was a lot more severe, but you started off the first quarter strong. The the dip in the second quarter was very severe. Here, we're just looking at a a more modest dip, but then the third quarter picking up and the fourth quarter being very strong. So it could look a bit like the the 2020 year, and I think, you know, which scenario plays out will be a matter of just how quick the tariffs and and uncertainty settles down. Thanks, Alberto. Agreed. Yeah. Of course. Good points there, Robert. Yeah. As I mentioned, previously, this page is really more to support some of the data that I had, previously mentioned. So upper part of the the slide here, dry powder. Right? So once again, this is capital that is, sitting there, across different strategies and it's just, waiting to be deployed. Right? You can see here buyout, direct lending, there's growth capital, venture capital. And it's interesting because, now aside from 02/2024, the back end of 02/2024, the the amount of dry powder really increased since the end of 02/2022, which is which is not surprising. As Bart alluded to, the February was really a period where, just in general, transaction activity did decline, and we're certainly not out of the woods there yet. And then, the the second chart, the one at the bottom of the page, it's interesting because once again, it depicts the, the holding period, right, for private equity firms. In other words, how long have private equity firms, held portfolio companies in their portfolio without exiting them? And as you can see, especially, post 02/2022, that investment horizon certainly increased. Right? And, and we are essentially around six years versus a traditional four to five years that, we have been observing over over over several several years. And, once again, a longer a longer, holding period entails an opportunity cost and and certainly a potential impact to, to returns. Right? Now all things being equal, holding an investment for a longer period of time may have a negative impact on, on, on on returns. And so, it's an interesting situation because I feel like there is just a a backlog of potential corporate access that are that is just there and, you know, is, just waiting for the right time to be, to be to be decreased, really. So, once again, this is, this good evidence. Robert, anything to add to this page? Or No. I think we covered it. Yep. I think so. Good. You know, just given the time we have left, I'll cover this real quick. Right? But a conversation that we constantly have with business owners is about timing. You know, when's the right timing? And sometimes it's a very clear go decision or a very clear no go decision. I think in this marketplace, it it definitely requires even more thought evaluation, but it's really three factors right down below you. Personal factors, business factors, outside factors. You know, personal factors, what's going on with those business owners in their current personal life and situation? Is it the right time from a personal standpoint? The business factors, you know, all about what's going on with the company. Are they performing well right now? Do they have new products and new services coming out and, therefore, should probably hold back and get some of that growth and benefit in? Is there a major contract, coming up? And we have a client now we've been engaged with for a while. We're just waiting for a, one of their five year contracts, one of their major customers to get reviewed. So looking at those various things, and now, obviously, we've got tariffs to look at. And then the last thing of outside factors is really mainly boils down to the m and a market in that particular sector. So in that sector you're in, is it an active sector? What are the valuation multiples? Are there plenty of buyers and activity? Is now a good time to be in market? So looking at all those things. And as Alberto alluded to previously, there is definitely a shortage of a quality assets, and there's been a shortage for the last several years. You know, at the the ACG annual deal max, it was a big conversation yet again. So if you're an a quality asset, good time to be in market. If you're not impacted by tariffs or it's minimal, good time to be in there. If you've got clear visibility with your revenue because you've got long term contracts, recurring revenue, good time to be in there. You know, if you're a discretionary consumer product or service, probably a a a good time to to most likely hold. Next slide, Alberto. Let's just take a a minute or two here. So just some really kinda six key things to really have in place that we have found over the years will really help drive and maximize value and increase certainty to close. So very quickly over to the left, you know, pinpoint value enhancement elements. So there we're talking about making sure you're highlighting those aspects of the company that make that company attractive and make it valuable to a buyer. Could be, once again, low customer turns, strong management, depth, the IP you have, etcetera. Articulating future growth plans. And it doesn't have to be growth plans that those owners are gonna implement, but growth plans that a potential buyer could implement. We all know that revenue and earnings growth, both currently and future, drive valuation multiple. So making sure you're articulating that in a good level of detail about what these opportunities are. Evaluating tax structure, very important, Christopher will talk about. And then over on the right side of the column, proactively addressing risk factors. Again, identifying things maybe that could be an issue that could be fixed, like sales tax or nexus issues or a regulatory compliance matter, but also being prepared to address buyer concerns, like with customer concentration, okay, or or, or having or or not having capacity in the plant. And any type of buyer concern is being ready to address those. And then the next thing, really having a competitive bid process. Right? Identifying all the good potential buyers and either running a limited process or a full process, but the idea is making sure you get the best value and the best terms in the market. And then just right the last thing is just making sure you've got the right team. The not only the right investment banker, m and a adviser, but the right tax people and the right legal counsel. So if you address all those things with your clients or within your company, then the odds of getting that best value in the market and increasing, the certainty to close will go up significantly. I think, Alberto, just given the time we have, I I think let's turn it over to Christopher. For sure. Thanks, guys. Although, I I I just wanna emphasize, Robert, that that last point of getting the right in the place. I I client recently where we were doing some tax analysis for them in preparation for a transaction and a great wealth manager, but they had an LOI in hand. And they called me and said, hey. Do you think I should have an attorney look at this before we do the deal? And I was like, yes. You should. And, you know, at the at the it got to the end of that transaction and and really needed the attorney. It ended up being kind of a there's some complex end up being some complexities and really needed a great attorney, and they were very kinda grateful for the advice. But it's it's all part of having that right team and having everyone kind of growing together to make sure that you're getting to, the right place. So I'm gonna talk for a few minutes about, you know, the kinda key tax issues to think about entering a transaction, and and thinking about that from from a process perspective. The big thing overarching to start is, you know, there there's no silver bullet here. Sometimes we come into a conversation about tax and someone says, well, you guys know how to, you know, do this the right way. He's like, well, no. Actually, tell me about your business and tell me about the your scenario to Robert point. Tell me about, like, what your situation is, what you're trying to achieve here. And then we can really talk about tax. Because the best answer from a tax perspective is going to be contextual, both from a a a literal technical tax perspective, you know, what the type of transaction is likely to be and certain other factors, about a business are going to really impact what good tax advice looks like. But also in the overall context of a deal. Right? You've gotta consider tax and and tax issues in that larger hole. I have one client where, you know, they're in the midst of a transaction and there were some tax issues with with how the the buyer had structured the transaction. It was causing some pain to the seller. And, ultimately, that was one of the reasons why the transaction didn't occur. They didn't they didn't end up closing that deal. Client came back a year later, said we've got a new deal, told me the structure, and I said, well, hey. I think you're gonna have essentially that same tax issue we talked about last year. And they said, yes. We understand that, but our valuation is doubled. So, this year, we don't really care. That tax issue in the context of a valuation that had doubled was not nearly as meaningful. Right? It was literally half as meaningful. Right? Just in the it it was now dwarfed by the the value they've gotten for their business. And if they didn't get the perfect answer from a tax perspective, they were okay with that, because the overall valuation was so strong. And so I always think it's important going into a deal to think about tax in that that context. Right? And and when we talk about doing modeling, a lot of it's about understanding, hey. Is one thing better than the other? But if so, how much better? If I tell you one transaction structure is gonna save you, you know, a hundred thousand dollars in a $2,000,000 deal, that's meaningful. It's gonna save you a hundred thousand dollars in a hundred million dollar deal. You might not wanna let that sort of be the the barrier. And so it's it's helpful, though, I think, to to early on in the process, really try to understand and and I'll talk a bit more about some of these factors, but really try to understand, where a transaction might go and how that would impact you. You know, what are the things that are going to drive a tax neutral versus a tax positive versus maybe a tax negative transaction? Kind of understand them. And and so even if you're early on, you start that modeling process as early as you can. Really start thinking about where this is gonna be because you wanna be able to have that conversation with your whoever's negotiating your transaction and say, hey. This tax point is gonna be important. We need to get this right. Or, hey. This is actually a smaller thing, and maybe this is something we can give on if there's another big point here that we've gotta worry about. Maybe, you know, to Robert and Alberto's point about tariffs, you know, is there something you can give on on the tax side to try to avoid a really long earn out, potentially? There there there's questions. Right? Again, thinking about tax in that overall context. And but, generally, again, you're you're always gonna be looking at the business specifics, understanding, you know, what are the factors that are gonna drive the different answers from a tax perspective and the different transaction types. Broadly, when when we're talking about transactions, there's there's a lot of different ways you can you can do a transaction. But at a base level, though, at a base sort of conversational level, it generally breaks down the stock versus asset purchases. In other words, is the buyer coming in buying the equity of the business, stock, or they do want do they wanna come in and buy the assets of the business. Part of the thing that gets really tricky from a tax perspective, especially if you're not someone who's regularly engaging in these transactions, is that asset purchases mean a lot more from a tax perspective than just I'm gonna come in and physically purchase the assets. There are transactions that, from a legal perspective, will read as a stock purchase agreement. You say, oh, that's a stock deal. It's like, no. That's not a stock deal because they've done a reorganization so that they can buy, you know, membership equity in in something or or stock in something while still getting the benefits that a buyer generally gets from an asset sale from a tax perspective. Generally, if if you're not familiar with that, generally, the benefit that you're getting is what's called a step up in the assets. So if you have either maybe highly depreciated assets or just a lot of, you know, goodwill in the business, what the buyer is looking for there is the ability to buy those assets and then from a tax perspective, take depreciation in those in order to limit their taxes down the line. Whereas, generally, if I buy stock and just, let's just say, a c corporation, I you don't get that benefit. The assets within the business stay the same value as they were before, and the buyer can only sort of recover what their purchase price was via their stock basis in the future sale. And so that might be limiting for them and certainly, you know, will generally increase tax, for the seller for the sorry, for the buyer, in the short term as as they're operating the business. And so it it's really important to to get out in front of these issues. Start thinking about these early, once you have a sense of what the numbers look like in a transaction. To think about, okay. Let's compare a couple of different ways this transaction could be done and see how big and important the tax issues are gonna be. You know, it it can be hard until you get into the numbers to see how important certain issues are gonna be. Although, even at a very early stage, it's possible to have, I think, a conversation to look at the key issues, that are generally gonna be questions in a stock versus an asset purchase. So I I I've listed out what I think are some of the biggest ones here. This is not an exhaustive list. Right? There are always gonna be issues as you kinda go through, a business structure, particularly sometimes when you got multiple entities. There's there's always gonna be little things that can really impact it, but you can have that kind of high level conversation looking at a few issues. The first is that, do you have any assets on the business that are gonna generate ordinary income if you do, an asset sale? What does that mean? Ordinary income for a pass through business, so for an s corporation or a partnership, not a c corporation where every type of income is taxed at the same rate federally. There are different types of income. And ordinary income, sort of just like wage income, if you think about it. Right? Can get taxed at maximum rates up to 37%, whereas capital gains right now and probably still in the future given where the the tax bill sits right now, are likely to get taxed at at 20%. And so that's a big gap. That's a that's a big delta. And so what are the assets that are likely to generate that difference? Because most of the assets of business right? For example, goodwill. You've got a heavy business that's when you look at the overall breakdown of the assets, it's mostly just goodwill and purchase price. It's all gonna be capital gain. And so in that scenario, a stock versus an asset sale may not be meaningful. The two biggest things that tend to come out on the, ordinary income side are cash basis receivables. So if I'm a business that's been doing my tax returns on a cash basis, but I've got a heavy amount of receivables, the sale of those receivables is gonna generate ordinary income. The other thing that matters is fixed asset depreciation. So if I've got fixed assets on my books that are fully depreciated, which a lot of businesses do if they're fixed asset heavy because of there's been generally pretty favorable rules in terms of depreciation over the last eight to ten years. That's also gonna create because if if to the extent those assets are valued, above what their tax value is at, you're gonna have ordinary income. It's recapture of those previous deductions. So that can be an important thing to look at. And, I think the other thing there with that is also understanding early on the valuation intent. Right? Or are we just gonna use the book basis for the assets, or are we going to use, appraisal? Right? I've had scenarios where the book value of something is a million. The appraisal value is 11,000,000. That's actually, I think, fairly common nowadays because while you may have book depreciated certain assets over time, you know, because of supply chain issues, ongoing issues going back to sort of the COVID era, there are certain things like vehicles and certain, like, equipment that are still very, very valuable relative to their, their their purchase price. State tax differences are important. Right? The simple example, if I've got an owner who lives in Florida and a business that's operating in New York, I'm gonna get very different answers on a stock sale versus, an asset sale. Because in Florida, if I'm selling stock, I'm gonna have no tax because I'm I'm taking picking up my gain there. In an asset sale, the business is the one with the gain. And so if the business is in New York, in New York City, even worse, right, you're gonna have additional tax there if you have to factor that in. Sometimes, though, there are tax benefits of doing an asset transaction. The main one is the pass through entity tax, which is, you know, Congress has has limited the salt the state and local tax deductions to $10,000 a year. That's set to go up, but not by a lot in sort of the current versions of the, of the tax bill that are being discussed. And so that's something whereby, in an asset deal, a a seller could get the pass through entity tax benefit. That will allow them to avoid those caps on state and local tax deductions that would apply in a stock sale. So we've had scenarios. Robert and I had one, last year where he said, can you run the numbers? We're pretty sure what the deal's gonna look like. And I said, Robert, actually, they're better off with an asset sale. Five. It's like a million dollars. He's like, what? That's pretty surprising. That doesn't happen a lot. I was like, I know. But here's here's a fact pattern. Right? They're, they don't have anything that's generating ordinary income. They were accrual basis. So their receivables were already at full value, and they didn't have a lot of fixed assets. The owner and the business were both located in New York State, so no mismatch there. The taxes were basically the same in either scenario from that perspective. And the simple win was, oh, we get passed to entity tax on the sale of the, of the assets, and so we actually won an asset sale. So Robert was able to go back and say, you know, buyer, you know, we're gonna give we don't even need a gross. We'll give you that on the asset sale. Right? And and that allowed, again, I I think the more wholesome conversation on other areas. So having that in your back pocket can to really understand it can be can be very, very valuable. I would note that, again, it's it's gonna be important to look at. There's discussions of changing some changes to the past due entity tax, in or the ability to to use those deductions federally in the current tax bill. So that's, I think, another bit of uncertainty, right, is that if you're looking at a deal that has payments, you know, that might close next year or may have payments that go out into the future, you kinda gotta factor in that uncertainty of what is the tax law going to look like when that happens. What, you know, what are my limitations going to be in terms of tax and try to think a little bit about, you know, where where that payment is gonna land and whether you're gonna have any tax issues with that. Couple of other things that I'll I'll I'll talk about these briefly, so that we can kinda get to questions. You know, personal tax planning. This is kind of always an important part, I think, for for a seller. You wanna think about trusts and other things that might improve your, personal tax situation. I do think about these differently. Right? You know, that you you have someone who's able to look at this from a a business tax perspective and say, hey. This is what a transaction's gonna look like. But then you have to be able to say in advance, oh, what do I wanna do with this money? And that might lead you to, for example, a large charitable donation. Okay. Well, you're gonna wanna do that in advance of a transaction because there are rules that would pull that back in for tax purposes, if you're not doing that far enough in advance. So that's something that you wanna do, I think, sort of commensurately with starting to think about the transaction tax. Also going, hey. How much money am I gonna have left over? Does it look like is that more than enough money, and, thus, do I wanna start doing some planning? Do I wanna start thinking about other places this money could go? Qualified small business stock is a topic that comes up a lot. It can be a very, very powerful tool. Essentially, what it does is it removes capital gains on stock transactions up to, either $10,000,000 or, a multiple of someone's basis. The issue there is that you have to be a c corporation, and that can be a very, very tricky thing, in terms of how a business actually operates if it's generating cash. A lot of times business owners, you know, wanna have that money pulled out on an annual basis. It can also lead to some sort of make things more difficult in a transaction because in that scenario, buyers can be very, very sorry. Sellers can be very incentivized to sell stock. Buyers generally don't wanna do that, and so you kinda have to consider your leverage. I had a client recently where they were QSBS. The buyer actually agreed to a stock sale and then very late in the transaction, changed their mind. And the seller didn't have a lot of leverage in that case. They were really down the path in the deal, really wanted to get it done. And so they had to sort of deal with some of those consequences, that, you know, because they were set up as a as a qualified small business. They're still able to get it on a part a deeper conversation. But just something that I think just to put in the back of your mind, if you're thinking about QSBS, it's not as simple as, wow, that's great. You kinda gotta think about it again in the context of your business and whether it's gonna make sense on a deal. The final thing, rollover equity. Just a lot of times now, you know, buyers wanna incentivize sellers. They'll they want to provide at least some of the compensation for a transaction in equity in the ongoing business so that if a buyer you know, if the seller is gonna continue to be a part of the transaction, they're sort of incentivized if they're, be part of the business. And so, you know, that's an important piece. What's really important about that is whether that equity is going to be taxable or not on day one in the transaction. A lot of that can really depend on the buyer's structure. And so it's important to have that conversation early on. If I'm delivering some noncash consideration, you know, whether it's 20%, thirty %, or even less of the deal, you know, is that gonna be part is that gonna be taxable? Because that's gonna be really impact the overall tax perspective of the transaction. So with that, I'm I'll turn it back to you, Robert. We'll take you to talk about some questions what that'll be coming. Yeah. Christopher, thanks. Thanks. I I I know you didn't have a lot of time to cover what could be a very complex but but very important, topic, but appreciate all that. Let's just we'll just go to the, the q and a here. We've got about about seven minutes, so we'll be able to address some of the questions here. So let's see. One of the questions is, do we see more multiyear earn outs? And I would say the answer to that is yes for those companies either impacted severely by tariffs right now or just where there's not a clear visibility. Right? So the more the more lack of visibility of of future earnings, I I think is where we're seeing more conversations about multiyear earnouts. Ones where there really isn't and it's an a quality asset for sure, no. We're we're definitely not. Another question was around, percentage of deals where both buyers and sellers have a quality of earnings. And for anyone who doesn't know, make we'll make it simple. A quality of earnings is is mainly a financial due diligence. In every case, the buyer's doing a financial due diligence. And in in almost all cases, it it is an outside firm doing a quality of earnings. With sellers, it's kinda mixed. I don't have any real stats. I would say for us, we think it's very beneficial and and a good use of, money well spent for a seller to do a quality of earnings on transactions at 50,000,000 and above. I I think the percent is very high, like 80% plus, at least for the transactions we do. In more of the lower end of the middle market, it may be 20 to 50,000,000. It's maybe, more around 45% where there's a sell side QA. And we won't get into the benefits, but there's just a lot of benefits of of doing that. Another question here is more on the tax side. Say from the tax side there too, I think it can be important. Again, maybe not a full sell side tax, you know, pre diligence, but sometimes it it's good to have that conversation in advance to know, do you think you've got issues that are gonna need to be addressed that, you know, a diligence is gonna find? Right? And just having that sense Yeah. Can be. Again, I've we've done full sell side one times, but on smaller deals, sometimes it's just even a few conversations with your the current tax advisers to understand. Hey. Do we have do we think we've got any problems that are gonna be showstoppers? And if we know if we think they're gonna be showstoppers, let's know about them before we before we actually get into diligence. Yeah. Definitely agree on on all the QOVs we do on the sell side. If it if it's not a full tax due diligence, we at least want, as you say, there to be a call and a and a quick review to see if if there's anything that needs to get dug into for for sure. Another question here, Christopher, I guess, is more for you. How early it's too early to start doing tax modeling for transaction tax planning? I think I think it's the the the too early can be if you really don't know what the transaction's gonna look like. Right? If you're putting numbers to it, you've gotta understand, you know, do we have a a sense of the value? What's the what's our range here? How how if there's maybe multiple pieces of a business, at least at a high level, how are we gonna break this up? You know, do we have some sense of whether there's gonna be any rollover or not? And so if if you really don't know the contours, it it may be too early to actually start getting into the numbers because you want those numbers to be meaningful. And that's really where you're pushing it over. So you wanna have had at least some of those conversations. So you could say, okay. Here are the numbers I'm gonna put. I I know they're not gonna be perfect. I know we're still early in an estimate base, but at least have an estimate that feels in the ballpark so that I can have a meaningful conversation. Because, again, if you're off by 50% of the deal value, well, those those numbers may not be very meaningful. Yep. Yep. Makes sense. Another question is, you know, around valuation multiples this year so far, you know, have we seen any big change versus last year? I mean, Alberto, you you can chime in too. I mean, I I think from what we've seen so far this year, we haven't seen any big shift in in in valuation multiples, you know, from what we've taken to market and from all the conversations with PEs and and other investment bankers. I I haven't seen any big change this year versus the last six months of last year. Yes. I would agree with that statement. Once again, everything then ties back to the consideration around what industry that particular company operates in, right? And and, ultimately, it's a reflection of, financial performance, meaning margin profile and historical growth, rates. Right? But I I would agree with you, Robert. It's, I'd say, substantially unchanged, with the caveat that certain processes that maybe consummated last year may now be on hold because of tariff impacts. Right? So I I do I do share the the same sentiment there, Robert. Yeah. Let's see. We've got about a minute or two left. See, there's a question here. You know, how often is rep and warranty insurance used? You know, we're we're a big proponent of rep and warranty insurance. The cost relative to the deal is is fairly small. You know, the rep of warranty insurance can allow the seller not to have to put money in escrow. It makes the negotiations of the rep of warranties and indemnity provisions much easier. So we're big fans of them, but it is still very deal specific. And and at the end of the day, up up to that client. And I know there are published stats by by some of the surveys that the lawyers do. I don't have that in front of me, but I would guess in the transaction sizes that we do from 20,000,000, to a couple hundred million, it's probably 4040% of the time. And, and there are there are companies out there that will write, a rep of warranty policy even on a small deal at 15 to 20,000,000. So, so I'm just guessing, but I would say probably somewhere roughly around 40%. So, Alana, we do have more questions, but I think that's all we've got time for. So I'll turn it back to you so we can wrap up very timely at 11:11AM. Thanks, Robert. And thank you to our speakers, and thank you everyone for attending. If you have not already completed it, we have launched our survey located in the survey tab of your panel. A copy of the PowerPoint slides and a recording of today's webinar will be made available to attendees via email within four business days. Thank you again. Have a great rest of your day. Thank you, everybody.