Tax Reform, Agency Valuation and M&A

    Posted by MAIA on February 6, 2018

    These changes directly impact every taxpayer in the U.S., but may also impact agency valuations, agency operating structure, and merger & acquisition activity.

    According to an analysis by Reagan Consulting, a firm that advises independent agents and brokers, insurance agencies currently organized as C-corporations, as well as smaller pass-throughs in states with low income tax rates, are most likely to see increased valuations. However, because taxes for pass-through entities are based on every owner or shareholder’s individual tax picture, it is impossible to determine general impacts with certainty.

    The analysis also notes that the new tax law will likely have a minimal impact on larger pass-through insurance agency valuations, and that converting to a C-corporation may or may not be beneficial because in most cases it still costs less in taxes to get cash out of a pass-through entity than a C-corporation.

    In addition, several S-corporation benefits have not been affected by tax reform, such as allowing for an asset purchase structure in a third-party transaction, which can lead to more aggressive valuations from buyers. However, for agencies that do not distribute significant profits to owners, the C-corporation structure may be advantageous, as it enables them to retain significantly higher amounts of post-tax cash.

    For more information and continuing updates on tax reform implementation, members can log in to the Big “I” Taxes webpage (Big "I" Log In required).


    Topics: The Massachusetts Agent

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