Tax is major deal-shaper for private companies

Gains and transfer taxes are major concerns for private companies looking to go to market.

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Deloitte Private’s latest pulse survey polled 100 leaders of private companies, with $100 million to $1 billion in revenue, about their organization’s timing, readiness, goals and preparation for a transaction. Leaders reported that tax on recognized gains (88%) and transfer taxes (87%) were major concerns, with 43% of leaders citing existing losses and 36% citing qualified opportunity zones as primary tax planning concepts.

Fifty-seven percent of respondents anticipate their organization is planning a future transfer or sale in the next one to three years, while 22% anticipate the next three to five years, 15% within the next 12 months and 6% after more than five years. Market conditions (50%), go-to-market readiness (43%) and personal urgency of the founder or owner (33%) are the top factors expected to impact the timeline for M&A deals. 

The most common reasons that would likely prompt the organization owner to sell a portion of the organization were a desire for a new partner to scale the business (45%) and a financial sponsor with the ability to scale the business (37%). Uncertainty about the business, outstanding reasons like medical or retirement, and attractive pricing for the seller, followed at 22%, 22% and 16%, respectively. 

About half (51%) of the private companies who say they are selling in one to three years say they are ready for the due diligence process, while 55% who are selling in three to five years say they are ready but still need to hire third-party advisors. Sixty-three percent of respondents say their organization has received a recent fair market value appraisal.

When asked about their plans in the event of a transfer or sale, 48% of private company owners and founders say they have established trusts that currently own an interest in the business for estate planning purposes. Thirty-seven percent plan to roll equity into the new company, if allowed, 25% have charitable intentions, and the remaining 20% responded none of the above or were unsure.