|Janas has studied the post COVID-19 Boom Economy expectation and is publishing a Series of Newsletters to address various actions that could have significant impact on Middle Market Companies. Our Series 101 will reveal previous tactics supported by Janas and used by our clients. Our purpose has been to take maximum advantage of the Economic Cycles of past decades to amass fortunes for Janas clients.
Each era held different opportunities—but all required a vision of what future actions companies and their owners must adopt in a changed world. Owners rarely retire at age 65, a mantra of the past. Older owners must consider how the New Economy and The New Federal Administration can impact their lives.
INCOME TAX CHALLENGES
Now that the Biden Administration is in office and is active, change is in the wind. When new Federal Administrations come to office – particularly when the Political Party in power changes, income tax policy change follows. During the last four Federal administrations, Tax Law changes have required an average of 502 days for passage post inauguration.
New Tax Rates
The Biden Administration has indicated a plan to increase taxes. For Long-Term Capital Gains, the proposal is to increase the rate from 20% to 39.6%. New rates are unlikely to apply through the end of 2021 and possibly into the first quarter of 2022. Income Tax laws are generally not retroactive. Under current tax law, the Federal Tax for each $10.0 million of Long-Term Capital Gain on sale of your business will be $2,000,000. Under the proposed new rate, the Federal LTCG tax would be $3,960,000, reducing the net cash to owners at transaction closing of $1,960,000 per $10.0 million of LTCG.
If you are a mature owner planning to invest the proceeds from the sale of your company, the New Tax Rates discussed above would certainly be negative. In future issues, we will discuss alternatives to sale of your company and how to benefit financially while enjoying your lifestyle – work, play – or both.
Please contact one of our professionals to discuss
basic issues that are of vital importance to you and your family.
The Janas Associates and Janas Consulting web sites have been combined to provide a more comprehensive description of who we are and the types of clients we serve.
Janas represents clients in the sale and acquisition of Middle Market businesses, corporate finance, and management consulting. In current assignments, Janas professionals are helping clients prepare for sale and actively working both sell side and buy side transactions for clients. Our client companies operate domestically and internationally.
Our new sights include a BLOG and connection to the web sites of affiliated firms:
Member: FINRA and SIPC.
Family and Closely Held Business Advisors.
Clean and Renewable Energy Specialists
Our professionals have all lived other business and professional lives – CPA, CFO, Management Consultant, Business Owner, Marketing Executive, and others. We ‘put ourselves in the shoes’ of our clients in a wide variety of businesses and industries. Janas Analyst and Intern position are filled by students from US based universities.
Janas recognizes that company valuations reflect a variety of factors. Telling your “Company Story’ is a Janas specialty. We know how to identify and describe your company to enhance Ownership Value.
Over more than two decades, Janas has completed more than 80% of its sell side transactions. Our success rate significantly exceeds the transaction closing rate of other Middle Market Investment Bankers.
More than at any time during the 25-years since the founding of Janas, Middle Market Mergers & Acquisitions valuations are strong with high demand for acquisitions. Middle Market companies are in “Sell High” territory.
Janas applies a philosophy for company divestitures designed specifically for owners who: (1) do who want to retire; (2) should diversify their investments; and (3) tap a substantial portion of company value in an excellent market.
“I sold my company, I still have my company, I will sell my company again.”
This philosophy describes company ownership who sell: (1) an ownership interest to a Private Equity Group and retain either a majority or protected minority ownership; (2) Enter into a Management Contract with above market compensation – Success Pays; and (3) Benefit from another liquidity event when the company sells again in the future.
Janas has applied this message for many years to the benefit of clients in several industries. A few examples:
• Olympic Oil Co., Inc. The company had four owners, one of whom wanted to sell his entire ownership interest. Janas attracted The Riverside Company to acquire 80% of Olympic for $20.0 million. The remaining three owners retained a 20% interest, received their share of the proceeds, net of $10 million of personally guaranteed debt and the ownership interest of the fourth owner. The Private Equity Group pursued a rollup strategy and sold the expanded company. The three Olympic owners received more proceeds from the sale of their minority interest than they received from their original majority ownership.
• St. Worth Containers, Inc. The owner and his deceased partner had built the company from scratch. The 50% owner/CEO wanted to cash out his deceased partner’s spouse, and take some of his proceeds off the table, but continue as CEO. Janas identified Spell Capital, a Minneapolis Private Equity Group, who: (1) acquired 85% ownership, (2) entered into a management contract with the CEO; and (3) provided the CEO with protections for his minority interest.
• Sierra Energy, Inc. The Company owned a significant debt to Wells Fargo Bank that it was unable to pay. Janas divided the Company into seven divisions and sold six divisions to a variety of buyers across the region. The bank debt was paid in full and the owner retained the seventh division with an estimated Enterprise Value in excess of $10 million.
• Lubricating Specialties Company. The Company was acquired from the founders with Private Equity Group participation. Growth Partners LCC invested $500,000 for a 15% equity stake. Over four years, a second PEG took out the first and the sponsor’s interest increased to 51% followed by a refinanced by a Commercial Finance Company that acquired the PEG ownership. The sponsor owned 86% and his management team owned 14%. After six years of ownership, Senior Management and another PEG acquired the sponsor’s interest. His $500,000 had increased to $17.0 million.