Closing a Deal Before Capital Gains Rates Increase

150 150 Brian Lauzon

There are very few occasions in life (especially in financial life) when predictions amount to a whole lot more than interesting cocktail party chatter. But we suspect this is one of those rare instances where it is reasonably safe to make a prediction:

Capital gains taxes will go up next year.

Proceeds of a sale of a business are typically taxed as capital gains. And as you certainly counsel your clients, it is the after-tax sales proceeds that count.

With the right investment banking partner, a well-run sales process for an RIA can be accomplished in six months. Our team has completed over 80 wealth and asset management deals over the past two decades. This experience inures to the benefit of our clients through:

  1. Identifying a broad list of potential partners that want what you have built (i.e., not just going out to the “usual suspects”)
  2. Preparing an outstanding confidential information memorandum (“CIM”) which will put your firm in the best possible light from the buyer’s perspective
  3. Creating a competitive auction process to ensure you receive fair and full value for your firm
  4. Choreographing a structured, deliberate process that vastly improves the probability of closing within a desired timeline

This last point is particularly critical with an impending capital gains increase.

If you are considering a transaction, starting your process now will increase the chances of closing prior to any 2022 capital gains increases (federal and/or state). That will almost certainly translate into significantly greater after-tax sales proceeds.

You have spent your career building your firm. With (pre-tax) valuations for wealth management firms at historic highs, the tax consequences of a sale have never been more substantial.

It goes without saying that the timing of a transaction needs to be right for you. But if you are contemplating a transaction, we think history will look back favorably on those who sold at 2021 multiples and a 20% federal capital gains rate.

We would be grateful for the opportunity to learn about your particular plans and share with you how our team may be uniquely qualified to help you achieve your objectives.