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January 26, 2013
   Fire Sale for Foreign Buyers
 Taxing Issue Faces U.S.-based  Middle Market IT Companies 

 

As we have previously noted, martinwolf expects 2013 to produce strong growth in cross-border deals by Indian and Chinese IT companies eyeing U.S.-based IT companies. 

 

It's no secret that recent trends, such as the decline in enterprise value of global IT Supply Chain companies, will make big companies want to get bigger. Another key factor, however, continues to make U.S. companies a target for acquisition - the high tax rate in the U.S.

 

Consider the following:

  • The U.S. has the highest federal corporate tax rate in the developed world at 35%;   
  • The top income tax rate for individuals grew from 35% to 39.6% on January 1, 2013; and    
  • Taxes on dividends and capital gains also jumped from 15% to an effective 23.8%.

These facts add up to negatively impacting valuations of middle market IT companies - essentially putting them 'On Sale' indefinitely for foreign buyers.

 

While many behemoth companies are able to reduce their effective tax rates through accounting practices, those methods are often unavailable to mid-market companies.

 

Since multiples are applied to earnings after taxes, the effect that this has on valuations can be dramatic.

 

And unless something changes, there's no reason to expect anything different.

 

Marty Wolf recently wrote about this more extensively in an article published by Yahoo! Finance that is linked here.

 

To learn more about martinwolf contact Matthew Putzulu at mputzulu@martinwolf.com.  

About martinwolf    

 

     San Ramon Office          
             San Francisco, CA                                                Bangalore, India

With offices in San Francisco and Bangalore, India, martinwolf is a leading middle market M&A Advisory focused on companies with IT services-based business models. Since 1997, our team has completed more than 115 transactions in six countries. We are a five-year member of the Merrill Lynch PS Referral Network, and were selected as ICICI Bank's (India's leading private bank) exclusive strategic partner for acquiring U.S. IT companies. martinwolf is a member of FINRA and SIPC. For more information, visit www.martinwolf.com.

   

Featured Transactions

 

November 6, 2012

Rolta, through its subsidiary Rolta International, Inc. announced that it acquired AdvizeX Technologies, LLC, a US company providing a comprehensive set of IT products and services ranging from roadmap planning to cloud-computing implementation strategy. With the acquisition, Rolta is now one of the top national partners of Oracle, Microsoft, HP, EMC and VMware in the US. Rolta was represented by martinwolf in the transaction. 

Please click here to view the announcement.

 

June 15, 2012

glendonTodd Capital LLC announced that it acquired Aztec Systems, a leading provider of enterprise technology solutions to hundreds of U.S. middle-market companies. Aztec was represented by martinwolf in this transaction. Aztec, a member of Microsoft's Presidents Club, was recently ranked 27th in revenue on Bob Scott's 2012 Top 100 VARS list and serves more than 700 middle-market clients. Terms of the transaction were not disclosed. Please click here to view the announcement.

 

December 1, 2011

Softchoice Corporation (TSX: SO) announced it has it has fulfilled its regulatory requirements under the Competition Act and has now completed the acquisition of substantially all of the assets of UNIS LUMIN, one of Canada's most highly regarded Cisco networking and managed services companies. Softchoice was represented by martinwolf. The acquisition strengthens Softchoice's professional services capabilities while providing the technology foundation to support the Company's future cloud offerings.

Please click here to view the announcement.   

 

 

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______________  

 

"...but in this world nothing can be said

 to be certain but death 

and taxes"

 

- Benjamin Franklin

 

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