It seems that I am hearing a lot more about M & A than I have in a number of years. Is that because I am older and many of the business owners I come in contact with every day are older and looking at options for exit strategies or succession planning? Could it be because acquisition multiples have increased from 6.9 x EBITDA in early 2010 to 8.5 x EBITDA in the third quarter of 2011? Could it be the uncertainty of where the tax rates will go when the so-called Bush tax cuts expire at the end of 2012? Is it time to implement a succession plan and transfer ownership while the current gift tax exemption (the amount that may be gifted with out paying a gift tax) is $5,000,000 per person? In 2013, the exemption will decrease to $1,000,000. Maybe a Grantor Retained Annuity trust (GRAT) is the way to go to make the $5,000,000 even higher. Will Congress address the expiration of the tax cuts prior to the election in November, or for that matter, after the election in time to delay or stop the expiration of the tax cuts? The terms Congress and Action have become an oxymoron, so I wouldn’t count on it. What happens after making plans, based on the uncertainty of what is going on, nothing changes and they end up keeping everything the same. In that case there is uncertainty about uncertainty.
When you are dealing with what you have spent your life building and what you want to either transfer to your heirs through ownership or through the proceeds upon its sale, it is disheartening to be put in such a position of uncertainty. The decisions you make or don’t make could have multi-million dollar consequenses. So what do you do? I would say you need to consult the professionals – your tax advisors, lawyers, financial planners, business brokers, investment bankers and other trusted advisors. Build a team that will stay on top of and advise you of what is coming down. You may want to include those that will be affected by your decisions such as your wife and children. You could make a decision based on what is in place today with regards to price multiples for a sale, exemptions for gifting, and tax rates that are in force now. On the other hand, you may want to know what the consequences are of adverse actions by Congress and how those actions will affect you and yours under various scenarios. In this case, you may want to have alternative plans waiting in the wings for speedy implementation if the uncertainty becomes a little more certain. You may decide you don’t want to take any action this year but wait until you see what will happen with a new Congress and/or President and build a strategy around what they put in place. If that is what you decide, so be it, but you have at least given the alterntives the thought they deserve. What is important, if you are considering a sale or transfer of ownership in the near future, even though this is a time of uncertainty, planning is still possible.