As Taxes Set To Rise, More Companies Seek To Cash Out

Last November Seattle Business wrote a cover story about the surge in capital going to equity firms in search of higher returns. We predicted then that the new capital would lead to a sharp rise in mergers and acquisitions. Now its beginning to happen. Look for a spate of new deals this year as more companies seek to cash out before Bush-era tax cuts expire at the end of the year. Ive suddenly gotten a flood of business, says Christian Schiller, managing director at Cascadia Capital. Its like drinking from a fire house. Ive cancelled my family vacations.

Schiller says that if Congress is unable to come up with a new tax package before yearend, as many expect, capital gains taxes would climb to 20 percent from 15 percent today. Throw in potential fees from healthcare reform and other possible taxes, Schiller says, and the tax burden from selling a $100 million business could climb from as little as $8 million this year to as much as $20 million next year. For those whove been thinking of selling their business, distributing dividends to shareholders or passing ownership onto an heir, thats a good reason the close a deal in 2012.

Some of the companies acquired could be pressured to cut costs. But John O’Dore, Managing Director at Meridian Capital says equity investments don’t always mean fewer jobs. In many cases, he says, companies are raising equity capital not just to cash out, but also to expand their businesses. That, for example, was the case with Chef’n, which received a significant investment from CID Capital and intends to use the money to expand its housewares business. In othercases, says O’Dore, an acquiring company from another region will acquire a Washington-based company and use it as a platform to expand into the Northwest.