Recent Selected Transactions

Chapman Associates, a leading middle market Mergers & Acquisition firm exclusively represented Vulcan Safety Shoe Service, Inc., a leading supplier of top-quality safety shoe footwear, in the strategic acquisition by Saf-Gard Safety Shoe Company.   For more details please click here to see the press release from eTradeWire.

Chapman Associates, a leading middle market Mergers & Acquisition firm with focus on IT (technology) and other sectors, exclusively represented Integrated Systems Analysts, Inc. (“ISA”), an IT Services Company focused on desk top support and plant systems support, in the strategic acquisition by Terralogic Solutions Inc. For more details please click here to see the press release from Terralogic Solutions Inc.

Chapman Associates, a leading middle market Mergers & Acquisition firm with focus on transportation and other sectors, exclusively represented B & M Cold Storage and Distribution, Inc., Dry and Cold storage facility providing warehousing and supply chain solutions, in the strategic acquisition by People’s Services, Inc.

Chapman Associates, a leading middle market Mergers & Acquisitions firm with focus on IT and other sectors, announced the acquisition of GreyHeller, an innovative enterprise application software company based in San Ramon, CA, by a group of strategically focused private investors. For more details please click here to see the press release.

Chapman Associates, a leading middle market Mergers & Acquisitions firm with focus on IT and other sectors, announced the acquisition of Future Technologies Group (FTG), a leading Systems Integrator and Managed Services provider with technology partners including Cisco, Avaya, Microsoft, NetApp and others based in Quincy, MA, by New Era Technology. For more details please click here to see the press release.

Chapman Associates, a leading middle market Mergers & Acquisition firm with focus on healthcare and other sectors, exclusively represented Allied Health Professionals, LLC, a healthcare staffing and placement firm, in the strategic acquisition by RCM technologies, Inc.

Chapman Associates, a leading middle market Mergers & Acquisition firm exclusively represented BEAME (fka Atomic Lighting), a live event lighting and equipment rental company, in the strategic acquisition by 4Wall Entertainment. For more details please click here to see the press release from 4Wall.

Chapman Associates, a leading middle market Mergers & Acquisition firm announced the acquisition of BFG Communications by Eastport Holdings. For more details please click here to see the press release from Adweek.

Chapman Associates, a leading middle market Mergers & Acquisition firm with focus on transportation and other sectors, exclusively represented United Express Service, Inc. in the strategic acquisition by NFI Industries. For more details please click here to see the press release from NFI Industries.

Chapman Associates, a leading middle-market IT Mergers & Acquisition, announced the sale of Distributed Technology Group to Accunet Solutions, Inc., a leading technology solution provider. For more details please click here to see the press release from Accunet Solutions.

Chapman Associates, a leading middle-market IT Mergers & Acquisition, announced that its client Promedia Technology Services, Inc. and AAV Holding Corporation, have joined forces to create a consulting, services and integration thought-leader in an effort to better serve the ever changing customer demands in education, local government and commercial markets. For more details please click here to see the press release.

Chapman Associates, a leading middle market Mergers & Acquisition firm with focus on transportation and other sectors, exclusively represented Triad Transport, Inc. in the strategic acquisition by Action Resources, Inc. For more details please click here to see the press release from Action Resources.

Chapman Associates, a leading middle market Mergers & Acquisition firm with focus on transportation and other sectors, exclusively represented Charles Gantt Trucking, Inc. in the sale to KJM Capital LLC. For more details please click here to see the press release from Refrigerated Transporter.

Career Opportunities

Professionals

  • Are you interested in a net worth increase of at least $2 million?
  • Are you a successful entrepreneur?
  • Do your skills and interests fit the lower M & A middle market?
  • Do you you have the requisite academic credentials?
  • Do you have experience in one of the following industries:

– Transportation                                    – Health Care
– Information Technology                    – Food
– Manufacturing                                    – Energy

Chapman

  • Value Proposition:  Maximum compensation for successful entrepreneurial M & A professionals in the lower middle market.
  • Chapman Associates was founded in 1954.
  • Our M & A professionals have closed over 2,300 transactions with Chapman.

Chapman will consider professionals with annual income goals in excess of $500,000.  If you are interested in a rewarding career, send your curriculum vitae to:

Contact information
Joe W. Denny
Chairman
Chapman Associates
16 East Schaumburg Road, Suite 3
Schaumburg, IL 60194

Tel: 847.884.0010
Fax: 847.884.0218

E-Mail: denny@chapman-usa.com

Industry News

Selling Your Company after 2017 Tax Reform

On 22 December 2017, United States (US) President Trump signed into law the Tax Cuts and Jobs Act (the Act) following passage in the House and Senate earlier that week.  The new law and a number of other factors will make 2018 an ideal time to sell a business.

M&A activity continues to be robust spurred on by a record high stock market, continued low interest rates and trillions of dollars in available capital.  Additionally, there are now a number of provisions in this tax reform legislation that should enhance the M&A environment including:

  • Companies repatriating profits now held overseas are expected to use some of those funds to spur growth through acquisitions.
  • Lower corporate tax rates will provide increased capital for acquisitions.
  • Lower tax rates provide increased net proceeds from the sale of a business.

General business provisions that may affect M&A

While the effect of the provisions in the Act ought to be analyzed on a company-by-company basis, as well as a sector-by-sector basis, many provisions of the Act have general applicability to many companies considering a merger, sale or acquisition.

Corporate

21% corporate tax rate — the 21% corporate tax rate is effective 1 January 2018.

Repeal corporate alternative minimum tax (AMT) — the corporate AMT is repealed under the Act, and taxpayers with an AMT credit can use the credit to offset regular tax liability.  Taxpayers are able to claim a refund of 50% (100% for years beginning in 2021) of the remaining credits (to the extent the credits exceed regular tax for the year) in tax years beginning before 2022.  The provision applies to tax years beginning after 2017.

Dividends received deduction — the amount of deduction allowable against the dividends received from a domestic corporation is reduced.  Specifically, the deduction for dividends received from other than certain small businesses or those treated as “qualifying dividends” is reduced from 70% to 50%.  Dividends received from 20%-owned corporations are reduced from 80% to 65%.

Expensing — Bonus depreciation increases from 50% to 100% for “qualified property” placed in service after 27 September 2017 and before 2023.  Under the Act, the original use of the property does not need to commence with the taxpayer.  The increased expensing phases down, starting in 2023, by 20% for each of the five following years.  Qualified property is defined to exclude — as with the Section 163(j) interest limitation — certain public utility property and floor plan financing property.  A transition rule allows for an election to apply 50% expensing for the first tax year ending after 27 September 2017.  The Act increases the depreciation limitations for listed property and removes computer or peripheral equipment from the definition of listed property.  The changes are effective for property placed in service after 31 December 2017, in tax years ending after that date.  Section 179 expensing increases to US$11 million for “qualified property” (i.e., tangible personal property used in a trade or business) placed in service in tax years beginning after 2017, with a phase-out beginning at $2.5 million.  Additionally, the term “qualified property” is expanded to include certain depreciable personal property used to furnish lodging, and improvements to nonresidential real property (such as roofs, heating and property protection systems).

Interest limitations —the revised Section 163(j) limitation is on net interest expense that exceeds 30% of adjusted taxable income (ATI).  For the first four years, ATI is computed without regard to depreciation, amortization, or depletion.  Thereafter (beginning in 2022), ATI is decreased by those items, thus making the computation 30% of net interest expense exceeding EBIT (earnings before interest and taxes).  ATI is otherwise defined similar to current Section 163(j).  A small business exception is keyed to businesses satisfying a gross receipts test of $25 million.  The provision is effective for tax years after 2017.

Net operating losses (NOLs) — for losses arising in tax years beginning after 2017, the NOL deduction is limited to 80% of taxable income.  The carryback provisions are repealed, except in certain limited situations but, for many taxpayers, an indefinite carry-forward is allowed.

Like-kind exchanges — the non-recognition of gain in the case of like-kind exchanges is now limited to those involving real property only.

Pass-through Entities

Pass-through income: special 20% deduction — Under the Act, individuals generally receive a 20% deduction on certain pass-through income.  Special limitations apply to “specified service businesses” based on the income of their owners.  As a general rule, an individual taxpayer is able to deduct 20% of domestic “qualified business income” (QBI) from a partnership, S corporation, or sole proprietorship (qualified businesses), subject to certain limitations and thresholds.  At the top tax rate of 37%, provided in the Act, if a taxpayer’s sole income source is domestic QBI and the application of the deduction is not limited, then the effective tax rate on the domestic QBI is 29.6%.  The deduction is not allowed against adjusted gross income, but rather a deduction to reduce taxable income.  Trusts and estates are eligible for the deduction.  Generally, the provisions are effective for tax years beginning after 31 December 2017, and before 1 January 2026.

Repeal of partnership technical terminations — Under Section 708(b)(1)(B) of current law, a sale or exchange of 50% or more of interests in partnership capital and profits within a 12-month period causes a “technical termination” of the partnership.  The Act repeals Section 708(b)(1)(B) for partnership tax years beginning after 31 December 2017.

Sale of partnership interests by foreign partners —The Act establishes by statute, a provision to treat gain or loss from the sale of a partnership interest by a foreign partner income that is taxable in the United States if the gain or loss from the sale of the underlying assets held by the partnership would be treated as effectively connected income (ECI).  In addition, the Act requires the purchaser of a partnership interest from a partner to withhold 10% of the amount realized on the sale or exchange of the partnership interest unless the transferor certifies that the transferor is not a nonresident alien individual or a foreign corporation.  The provision regarding the treatment of gain or loss from the sale of a partnership interest by a foreign partner as ECI is effective for sales or exchanges occurring on or after 27 November 2017, while the required withholding on sales of partnership interests applies to sales or exchanges occurring after 31 December 2017.

Carried interest — for certain partnership interests held in connection with the performance of certain services, the Act imposes a three-year holding period to treat capital gain as long-term capital gain.  The provision is effective for tax years beginning after 31 December 2017.

Business Asset Sale Comparison

The table below compares the tax effects of an asset sale of business by C-Corporation versus a pass-through entity such as S-Corporation, Partnership or LLC under the old tax law in 2017 and the new Tax Cuts and Jobs Act in 2018 for both the business, and their owners.  The example assumes a sale of all assets of the company for $10 million all taxed at ordinary rates.  C Corporations do not have a capital gains tax; but, owners of pass-through entities pay capital gains tax at 20%.  For simplicity this example assumes that all assets sold were subject to tax at ordinary income rates as will be the case with receivables, inventories and recapture of fully depreciated assets.

Owners of pass-through entities now benefit from a 20% deduction against pass-through income to a maximum tax rate of 29.6%

Tax Cut Comparison from 2017 to 2018 for C Corporations and Pass-Through Entities
C Corporation S Corp, LLC or Partnership
2017 2018 Difference 2017 2018 Difference
Selling price 10,000,000 10,000,000                 –   10,000,000   10,000,000                 –
Corporate tax rate 35.0% 21.0% -14.0% 0.0% 0.0% 0.0%
Corporate tax   3,500,000   2,100,000  (1,400,000)                  –                  –                 –
Distributable proceeds    6,500,000    7,900,000   1,400,000  10,000,000  10,000,000                 –
Shareholder tax rate 39.6% 37.0% -2.6% 39.6% 29.6% -10.0%
Shareholder tax   2,574,000   2,923,000     349,000   3,960,000   2,960,000 (1,000,000)
Net to shareholder   3,926,000   4,977,000  1,051,000   6,040,000   7,040,000  1,000,000
Effective tax rate 60.7% 50.2% -10.5% 39.6% 29.6% -10.0%

 

Stock Sale

Consequences of a stock sale are realized at closing by the owners of the business.  Sellers will recognize a gain to the extent the sales price is higher than their cost basis of the stock.  Any gain will be taxed at the 20% capital gains rates according to the seller’s holding period.  Consideration should also be given for any effect of the Net Investment Income Tax to a seller holding a business interest as an individual or through an estate or trust.  This tax could add an additional 3.8 percent tax on top of the otherwise applicable amount.

Capital gains tax rates remain unchanged under the Tax Cuts and Jobs Act.

 

This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice.  The article provides only a very general summary of complex rules.  For advice on how these rules may apply to your specific situation, contact a professional tax advisor.

New Managing Directors

David Turgeon joins Chapman as Managing Director

David Turgeon is a seasoned intermediary, business owner and operator who has worked extensively with entrepreneurs and small businesses in the private sector.  His background includes a successful record of sourcing and closing transactions.  With Chapman, he will be focusing on healthcare and manufacturing industry companies, as well as California companies across the middle market.  Please click here to see David’s complete professional biography.

Ted Bernstein joins Chapman as Managing Director

Ted Bernstein is a proven finance, healthcare / life sciences, and lawyer-business leader with over 25 years of deal-making and Wall Street experience.  His professional tenures include roles as investor, intermediary, adviser and operator.  With Chapman, he will be focusing on healthcare industry companies.  Please click here to see Ted’s complete professional biography.

Jack Jacchino joins Chapman as Managing Director

Jack Jacchino brings to Chapman Associates a highly successful professional career as a corporate M&A practitioner, master negotiator, accomplished business strategic and business owner.  He has worked in all industry verticals having successfully completed over 250 acquisitions and 135 divestments.  With Chapman, he will be focusing on information technology companies.  Please click here to see Jack’s complete professional biography.