Analysis: U.S. investment bankers’ new pitch – Biden’s tax hike

In this news, we discuss the Analysis: U.S. investment bankers’ new pitch – Biden’s tax hike.

(Reuters) – Investment bankers keen on winning lucrative assignments have a new rhetoric for American business owners: Hire us to sell your business now, or pay at least twice as much in taxes if the Democratic candidate for Presidential Joe Biden succeeds.

Biden proposed to increase the capital gains tax rate from 20% to 39.6% for those earning more than $ 1 million. It would also increase the corporate tax rate from 21% to 28%.

Biden is expected to win the presidency and his Democratic Party is expected to take control of the Senate and retain control of the House of Representatives in the November 3 election to have his tax proposals become law. Although far from certain, this prospect has been seized by bankers eager for new business.

“We urge all of our current and potential clients to take note of the potential upcoming changes, as well as their associated consequences, as they consider an exit strategy for their business in the near future,” wrote Houlihan Lokey Inc HLI.N Bankers in a note earlier this month.

The Biden campaign did not immediately respond to a request for comment.

The talk of investment bankers is aimed at individuals and families, as well as private equity firms, who control companies and can decide when to sell them. It also targets business founders, who can only sell one business in their lifetime, making it the most important transaction of their life.

The strategy seems to be working. Sales of private U.S. companies totaled a record $ 253 billion in the third quarter, five times higher than the second quarter and 51% from the third quarter of 2019, according to financial data provider Dealogic. This despite the COVID-19 pandemic suppressing assessments of companies in certain sectors.

(Graphic: here)

“Since the summer, we’ve seen a lot of dialogue from family offices about exploring a sale of certain assets. Many of these investors are savvy about how they run their affairs from a tax perspective, ”said David Perdue, partner in the PJT.N strategic advisory group of investment bank PJT Partners Inc.

One of the U.S. companies pursuing a deal for tax reasons is Asplundh Tree Expert LLC, a family-owned tree pruning business, according to people familiar with the deliberations.

The family who have owned Asplundh since 1928 have been keen to keep the business and have resisted offers to sell to private equity firms hungry for rapid change. When one of these companies, CVC Capital Partners Ltd, convinced the Asplundh family to sell it a minority stake in 2017, it had to use a buyout fund that it manages and which is dedicated to holding the stakes for a period of time. decade or more, rather than cash out after a few years.

Today, the Asplundh family are working with investment bankers to cash in part of their stake, in part because of their concerns about upcoming changes to the tax system, one of the sources said. He is seeking a valuation for Asplundh of up to $ 10 billion, the sources say. Asplundh did not respond to a request for comment.

Even if Biden wins and implements his tax plan, business owners may still have time to cash in. Most of President Donald Trump’s corporate tax cuts, which were enacted in 2017, took effect in 2018, a year after he took office.

Nonetheless, the sharp rise in divestitures from private companies shows how some of their owners view Biden’s election victory and subsequent tax changes as likely.

BEST PRICE VERSUS TAX SAVINGS

Goldman Sachs Group Inc. GS.N has advised on more sales of private US companies since the start of the year than any other, followed by Morgan Stanley MS.N, JPMorgan Chase & Co JPM.N and Bank of America Corp. BAC.N, according to Dealogic.

To be sure, getting the best price remains the number one consideration for business sellers, rather than saving on taxes, investment bankers said. Private equity firms, in particular, fear criticism from investors if they think they’ve sold a company for the tax benefit of buyout fund managers, rather than getting the best price.

“There is a tax consideration and a more strategic consideration. The tax consideration only applies if you are willing to sell and could achieve attractive valuation multiples that could lead to a successful sale, ”said Solon Kentas, Co-Head of Mergers and Acquisitions for the Americas at UBS Group AG UBSG.S.

Reporting by Joshua Franklin and Chibuike Oguh in New York; Editing by Greg Roumeliotis and Lisa Shumaker

Original © Thomson Reuters

Originally posted 2020-10-21 11:16:11.

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