Don't want to discuss the politics of this just the implication on business sales.
Does anyone have insight into some seller's mindset, will they now be less likely to sell businesses because of the new proposed retroactive capital gains tax increase? Logically, I assume some would rather just hold on for another 3-4 years and hope it returns to lower rates due to the fact it could cost them a lot of money, but hoping that is not the case.
Also, how would this affect pricing if at all?
Will a retroactive capital gains tax hike will slow business selling?
by a searcher from Harvard University - Harvard Business School
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https://peprofessional.com/2021/05/rest-2021-see-deals-higher-prices/
1) I had a seller (very left leaning) who sold off his business last year b/c he feared tax increase this year.
2) Primary reason for sale in most cases is retirement or exit for personal reasons.
3) Seller will have to hold off for approx. one year to make up for the tax increase. Here is a very high-level overly simplified example (that one can use to make changes to their situation):
Example: EBITDA = 1000. EV = 5000. Assume Capital Gain = 2000 (~60%). Assume CG tax rate = 20% (old) and 40% (new). Therefore, Tax (old) = 400, Tax (new) = 800. After-tax Net(old) = 4600 and Net(new) = 4200. A reduction of ~10% or 400. Seller holds-off selling for 8 months, he/she will make EBITDA profit of 666 (=1000*8/12). After taxes of 40% this will net him/her 400, the same as the reduction in after-tax net due to tax increase. Of course, EBITDA is not pure cash profit. So Seller will have to wait a longer than 8 months, say 12 month. (Note: I have not included impact on price due to tax increase.)