I have a 27 year old manufacturing company under LOI as an asset sale. The owner and I have been getting along great, working together fairly, and both committed to closing. The entity is a C-Corp and most of the assets will have been heavily depreciated. In our last meeting the owner brought up the fact that he is concerned about his tax bill after depreciation recapture, but his CPA has not yet done his analysis.
Does anyone have any experience in how to handle these negotiations to come to a fair outcome? Valuing the assets at market value in my mind sounds the most fair, because that is what they are actually worth. What is actually considered fair in these situations? Are there any approaches that have worked well for you when negotiating with owners under similar circumstances?
PPE Price Allocation Discussions/Negotiations
by a searcher from University of Massachusetts Amherst - Isenberg School of Management
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Regarding the tax burden for your seller, I would argue that the tax advantages enjoyed by him prior to the sale should not go unnoticed. In my experience, depreciation recapture is meaningful when the seller employed aggressive depreciation policies. This was his choice and he enjoyed the benefit. As long as you’re paying a market price for the business now, the seller’s tax bill is of his own doing. Anything else seems like an unjustified price increase to me.