The landscape of estate tax planning is set to undergo a significant change in the coming years, as the estate tax exemption is set to revert to pre-2018 levels at the end of 2025. This means that married individuals with estates valued at more than $14 million (half of this if single) will once again be subject to estate taxes, with rates ranging from 18 percent to 40 percent. However, recent proposals by the Biden administration may accelerate this change, with some experts predicting that the estate tax exemption could be reduced as early as the end of 2024.
The changes to estate tax planning also have implications for mergers and acquisitions activity. With the potential for the estate tax exemption to be reduced as early as the end of 2024, founders and families involved in M&A transactions may need to be more proactive in their estate planning efforts to ensure that their assets are protected and their estate tax liability is minimized. This may involve the use of trusts or other estate planning vehicles to transfer assets to beneficiaries in a tax-efficient manner (i.e., while values are lower), as well as the use of insurance policies or other strategies to provide liquidity to cover potential estate taxes.
Overall, the pending changes to estate tax rules highlight the importance of taking a holistic approach to M&A transactions, one that considers not only the financial and strategic implications of the transaction itself, but also the estate planning and tax implications for high-net worth individuals and families.
By working with experienced professionals and staying informed about changes in the tax landscape, individuals and families involved in M&A transactions can ensure that they are well-positioned to protect their assets and minimize their tax liability.
M&A Market Activity
U.S. deal volume declined in April 2023 as compared to the prior month. Through the first four months of 2023, U.S. M&A deal volume decreased by over 25 percent compared to same period in 2022.
Similar to the overall U.S., the Columbus, M&A market experienced a decline in deal volume in April 2023 with deal volume falling by 35 percent as compared to March 2023. April 2023 did, however, see several noteworthy transactions in the Columbus region. Columbus-based companies Greif, Inc., Highlights For Children, Inc., Codex TechWorks, Feazel Inc., and Hub Plastics, Inc. completed strategic acquisitions within the month.
Deal of the Month
On April 10, 2023, The Palmer-Donavin Manufacturing Company, a residential building material distribution and door fabrication company headquartered in Columbus, acquired Diamond Hill Plywood Company, Inc. Diamond Hill Plywood is a distributor of building and construction-related products including lumber, hardwood plywood, trims, siding, composite board, decking and railing.
“We are pleased to be able to come together as two leading distributors in our industry,” said Palmer-Donavin CEO Robyn Pollina. “Diamond Hill Plywood and Palmer-Donavin are better together. We can grow more effectively together than as two separate companies. This year, we plan to learn from one another and will work together with a goal of continuing our mission to deliver more to our dealers, partners, and employees.”
As an employee-owned company, the employees of Diamond Hill Plywood will become equity owners in Palmer-Donavin and share in the upside of the combined businesses.
Tom Freeman is a Senior Advisor and Evan Lyons is a Vice President with MelCap Partners, LLC, a middle-market investment banking advisory firm. For more information on MelCap Partners, please visit www.melcap.com or email [email protected] or [email protected].