Tag: Rob Macklin

Driving Value Before an M&A transaction

The Mergers and Acquisitions market continues to be hot. While it was initially unclear how the pandemic would affect it, the M&A market has proven to be highly adaptable and has recovered nicely. Historically low borrowing costs means motivated buyers, and while it continues to be a seller’s market, smart business owners are those that are still looking for opportunities to put their business in the best position to capture the highest possible price.

One avenue that many sellers go down is the private equity route.  But while there is a lot of private equity money chasing deals, private equity buyers are still some of the sharpest acquirers out there.  They will evaluate the business from all angles, and if there is a problem – or just an opportunity to drive the sales price down – they’re going to find it.

To prepare for that sort of sophisticated buyer, the smart seller needs to address potential problems before the sale. With appropriate time, there is significant ability to fix problems and to drive meaningful value.

One to five years before a sale, a business owner needs to stay focused on achieving the following.

  • Showing positive growth rates in sales, earnings and EBITDA
  • Developing strong EBITDA margins compared to competitors
  • Developing recurring revenue streams
  • Diversifying (where possible) your customer base and cleaning up your contractual relationships
  • Develop a succession plan that empowers managers and eliminates excess dependence on key people
  • Optimize your legal, operational and tax structure to maximize your post-tax sales price
  • Settle litigation and pre-litigation claims whenever possible
  • Evaluate and protect your branding and IP portfolio

Even if you are not thinking of selling today, most business owners will receive one or more unsolicited offers at some point, and it’s important to be prepared. Waiting until a deal is imminent will only erode value. Unfortunately for business owners, the best time to sell is probably not the time they actually want to sell. While personal timing is important, business owners looking to maximize their sale price need to be flexible and take advantage of the market.

Next Steps

The selling of a business can take six months – or longer – so preparing ahead of time is key. Consider your advisors early. A private equity buyer may purchase 20 businesses a year. That can be intimidating for a business owner who only has one chance to sell their company. The stakes are incredibly high and assembling a team of expert advisors and giving yourself time to address liabilities is the best way to ensure you will be satisfied with your sale.

To learn more about M&A in a post-Covid world, join me for the virtual Deal Makers conference on February 18. I’ll be part of a panel discussing how middle market companies can manage risks and maximize value during the sale process.

 

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Consolidated Appropriations Act 2021: What Employers Need to Know

On December 27, 2020, the U.S. government enacted the Consolidated Appropriations Act, 2021, which is the second-largest federal stimulus package after the $2 trillion CARES Act passed back in March. Within the bill is the Coronavirus Response and Relief Supplemental Appropriations Act (the “Act”). The Act was enacted to help relieve the financial stresses businesses are experiencing during this economic downfall. The Act extended the Paycheck Protection Program (the “PPP”), enhanced the Coronavirus Aid, Relief, and Economic Security Act’s (the “CARES Act”) relief, and provided additional relief. Below is a summary of changes to the PPP, tax provisions, business meal deduction, and employment benefits.

Expansion of the Paycheck Protection Program

The Act added an additional $284 billion for forgivable PPP loans and extended the program to March 31, 2021. Small businesses categorized as “hard-hit” businesses that received PPP loans in 2020 will be eligible for a second round of funds. The eligibility requirements for the second round of PPP loans are:

  • Have 300 or fewer employees;
  • Have used or will use the full amount of their first PPP loan; and
  • Show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

The additional eligibility requirements stated above do not apply to first-time borrowers. The size of a PPP loan is limited as follows:

  • A business may obtain 2.5 times its average monthly payroll; or
  • A business in Accommodation and Food Service (NAICS Code 72) may obtain 3.5 times its average monthly payroll.

The second round of PPP loans are capped at $2 million per borrower; whereas, the first-time borrowers remain capped at $10 million.

Enhancements to the PPP

Expanded forgivable expenses, including:

  • Operational Expenditures: software and cloud computing service payments used to facilitate, without limitation, business operations, service or product delivery, payroll, processing, billing, accounting, inventory, and human resource functions.
  • Supplier Costs: payments to suppliers of goods that are essential to operations at the time made pursuant to an order or contract in effect prior to the covered period.
  • Property Damage: costs related to any public disturbances that occurred in 2020, to the extent not covered by insurance or other compensation.
  • Worker Protection Costs: costs related to compliance with regulations issues by CDC, HHS, OSHA or any state or local government authority after March 1, 2020 and ending on the date when the national emergency declared by the president related to Covid-19 safety measures expires.

Additional Notable Updates

  • Expenses paid with proceeds of PPP loans are deductible for income tax purposes, a change from prior IRS rules. This may be the most significant change for many businesses.
  • Borrowers may self-elect a covered period between 8 and 24 weeks from receipt of the PPP loan.
  • Repealed the requirement that borrowers must deduct the $10,000 Economic Injury Disaster Loan advance amount from the forgivable amount of the PPP loan.
PPP Loan Proceeds

A business whose PPP loan is forgiven is not required to include the amount forgiven in gross income. Also, tax deductions are permitted for otherwise deductible expenses paid using the proceeds of a forgiven PPP loan, and there is no corresponding reduction in the basis of business assets. Therefore any forgiven PPP loan is effectively tax-exempt income.

Other Provisions
  • Employers who deferred withholding of the employee payroll taxes under the presidential memorandum dated August 8, 2020 now have until December 31, 2021 to arrange for withholding from employees and repay the deferred amounts.
  • Businesses that receive CARES Act loan forgiveness are not required to include amounts forgiven in income and are permitted tax deductions for otherwise deductible expenses paid.
  • Employer tax credit for paid family and medical leave extended through 2025.
  • Employer may continue to pay up to $5,250 per employee toward an employee’s “eligible student loan repayments” and the payments will be excluded from employee’s income through 2025.
Business Meal Deduction

The Act increased the limit on deducting business meals, including takeout and delivery meals, provided by restaurants to fully deductible. This rule applies to expenses paid or incurred in 2021 and 2022. All other existing requirements continue to apply when you dine with current or prospective customers, clients, suppliers, employees, partners, and professional advisors. Thus, to be deductible:

  • The food and beverages cannot be lavish or extravagant under the circumstances; and
  • You or one of your employees must be present when the food or beverages are served.

If food or beverages are provided at an entertainment activity, either they must be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice, or receipt. This is required because the entertainment, unlike the food and beverages, is nondeductible.

Impact on Labor & Employment

Unemployment Benefits

The Act extended existing pandemic unemployment insurance programs under the CARES Act, the Pandemic Unemployment Assistance program, and the Pandemic Emergency Unemployment Compensation program. The Act provided an additional 13 weeks of benefits to those individuals who have exhausted their regular state benefits in addition to a supplemental federal unemployment benefit of $300 per week for up to 10 weeks to March 14, 2021. Additionally, the Act added program integrity provisions that require documentation of earnings and employment and compelled states to have processes for verifying an applicant’s identity to combat fraud and abuse in the unemployment programs.

Paid Sick Leave

The Act provides a tax credit to support employers that offer paid sick leave to employees. The Families First Coronavirus Response Act is no longer required as of December 31, 2020, but if covered employers voluntarily provide these benefits through March 31, 2021, those employers are eligible to take the tax credit for the leave. Also, the Act extended refundable payroll tax credits and employee eligibility for the paid sick and family leave to March 2021.

Next Steps

When it comes to the Coronavirus Response and Relief Supplemental Appropriations Act, there are a lot of changes for employers and business owners to know. It is important to understand all your options and develop a strategy to maximize your benefits. Epiphany Law attorneys will partner with you to create a plan that will help your business efficiently and effectively achieve your desired results. You can contact us here.

When to Update Your Company’s COVID-19 Policy

Keeping current with CDC guidelines and vaccination roll-out

In recent weeks, CDC recommendations regarding the length of quarantines have changed. And, as the COVID-19 vaccine becomes available to the public, employers may need to review and update their policies to better reflect the current situation. The below are some of the top questions employers are asking regarding how they can better protect their employees, customers and their business.

Q: Can I mandate employees receive the COVID-19 vaccine?

A: This answer may vary by industry, location and whether your workforce is unionized. Currently, many health care companies have already mandated employees receive annual flu shots. Both the Occupational Safety and Health Administration (OSHA) and the U.S. Equal Employment Opportunity Commission (EEOC) have determined these policies to be permissible for health care workers. However, both OSHA and EEOC require employers to consider granting accommodations to employees who refuse to vaccinate due to a medical condition, disability or even religious belief.

Employers with unionized workforces will also need to consider the National Labor Relations Act as well as any labor contract obligations. If there is no collective bargaining agreement that already exists regarding mandatory vaccination, the employer may be required to first bargain to agreement before a mandatory vaccination policy can be enacted.

Business owners and employers should also ensure their policies are compliant with any pertinent state laws. Currently there is no Wisconsin state law prohibiting employers from requiring employees get vaccinated as a condition of employment. However, some states do permit employees to opt out.

In addition to the legalities of the issue, employers need to consider practical matters such as how a vaccine requirement could impact recruitment and retention. According to recent Gallup polling, 42 percent of U.S. adults say they are hesitant about getting the COVID-19 vaccine.

Q: If employees do get vaccinated, will they still need to comply with a mask mandate?

A: State mask mandates will most likely stay in effect while vaccine administration is rolled out. Most states now require face masks to slow and reduce the spread of COVID-19.  OSHA has offered guidance and generally recommends that employers encourage employees to wear face coverings while in the workplace. Until OSHA and CDC guidance changes, employers should stay compliant with current recommendations. It’s important the company’s COVID-19 policy demonstrates a proactive approach to protecting employees’ health and preventing outbreaks. Since March, there have been over 1,400 lawsuits filed against employers due to alleged coronavirus labor and employment violations. One of the most effective ways to protect both your employees and your business is to develop, document and enforce policies that are consistent with OSHA and CDC guidance.

Q: Now that the CDC has shortened their quarantine timeline, can I adjust our company’s COVID policy accordingly?

A: Employers now have more options for quarantine guidelines, however symptoms must continue to be monitored through Day 14. On December 2, the Centers for Disease Control and Prevention announced new quarantine guidelines for employers. Previously, the CDC had advised a standard 14-day quarantine for employees who came into close contact with individuals who tested positive or were presumed positive. The new guidelines now offer the following alternatives.

  • Quarantine can end after Day 10 without testing and no symptoms have been reported during daily monitoring.
  • Quarantine can end after Day 7 IF a diagnostic specimen tests negative and if no symptoms were reported during daily monitoring. The specimen may be collected and tested within 48 hours before the time of planned quarantine discontinuation, but cannot be discontinued earlier than after Day 7.

To ensure your company’s COVID-19 policy meets your legal responsibility and limits your risk of litigation, it’s a good idea to reach out to legal counsel. Together, you can evaluate your options and you’ll stay up-to-date with the rapid changes from guidance at local, state and national level.

Epiphany Law, LLC Advises Tundraland on Acquisition of Renewal by Anderson.

Epiphany Law is pleased to announce that it represented Tundraland, a Kaukauna-based home improvement business, in the acquisition of the Milwaukee window company, Renewal by Anderson.

Tundraland Home Improvements LLC, which operates in Wisconsin and Arizona, announced the acquisition Wednesday, Dec 2, 2020. Tundraland is the parent company of Jacuzzi Bath Remodel of Wisconsin, Decks in a Day, Jacuzzi Bath Remodel of Arizona and Renewal by Anderson of Greater Milwaukee.

As a result of the acquisition, Tundraland will expand its workforce in the Milwaukee area. Tundraland said the company plans to add more than 100 new jobs in the Milwaukee area in the upcoming months.

“Renewal by Andersen of Milwaukee has a 20-year ‘Best in Class’ track record for delighting their customers,” said Brian Gottlieb, CEO and founder of Tundraland, in a news release

“They have a culture of excellence, which makes them a great fit. Like all the markets we serve, we’re excited to bring a unique and impactful level of community outreach to Milwaukee that makes us more than just a home improvement company; instead, a brand that’s woven into the fabric of the community.”

Tundraland, a privately held company, has more than 400 employees. It has its headquarters and a showroom in Kaukauna with another showroom in Wausau. Tundraland operates production facilities in McFarland and Pewaukee.

Epiphany Law Partner, Rob Macklin led the deal team, which also included Partner Katie Blom, as well as Associate Shane Anderson.

 

Media Contact:

Epiphany Law, LLC

Shannon Daniels

Marketing Director

sdaniels@epiphanylaw.com

920.996.0000

www.epiphanylaw.com

Strategies for Maximizing the Value of Your Business

How will COVID-19 impact the M&A Market?

Whether you’re thinking about selling your business now or in the future, it’s critical to understand how a prospective acquirer might value your company, and how you can influence that valuation. Even if you’re not thinking of selling today, most business owners will receive one or more unsolicited offers at some point…and you should be prepared. Rob Macklin, Partner at Epiphany Law, and Corey Vanderpoel, Managing Director and Owner at Taureau Group, will discuss strategies you can use in order to maximize the value of your business from both legal and investment banking perspectives, and importantly, will discuss the impacts of COVID-19 on the M&A environment.

• Operational, financial and legal preparation for a business
• The transaction process
• Due diligence and legal imperatives
• Shareholder tax and estate preparation
• Assembling a team of advisors

You can watch the complete webinar here.

Epiphany Law, LLC represents Security Door & Hardware Co. and Security Builder’s Supply Co. on their sale to CIH

Epiphany Law LLC is pleased to announce the successful sale of its client, Security Door & Hardware Co. and Security Builders Supply Co. to Central Indiana Hardware, Inc. (CIH).

Security Door & Hardware (SDH) and Security Builders Supply (SBS) provide full Division 8 commercial door and hardware products through four IL locations. The companies will continue to operate under the Security Door & Hardware and Security Builders Supply names as divisions of CIH.

Russ Benson, a member of the founding family said, “We are proud of our accomplishments and feel that CIH will only expand on the legacy our family began.”  Tim Johnson, VP and General Manager of SBS added, “Being part of the Security family has been a fulfilling and educational part of my career and I am proud of what our team has accomplished. I now look forward to a new family team at CIH to grow and expand services to our longtime customers.”

“I have been a part of a great team of individuals and am very proud of what we have been able to accomplish together. We welcome the opportunity to provide additional offerings to our clients over time and are confident that we will improve on the excellent service they have come to expect. Becoming a part of CIH will allow us to better serve our customers in all aspects of the business,” said Greg Rolnicki, VP and General Manager of SDH.

“We are excited to welcome Security Door & Hardware and Security Builders Supply to the CIH family,” said Ron Couch, President & CEO of CIH. “As a company focused on delivering exceptional customer service through innovative programs, we are excited to support the SDH & SBS teams with resources to expand opportunities and accelerate growth in their market.”

“We were thrilled to be able to help the companies transition to new ownership while maintaining their core values,” said Rob Macklin, a Partner at Epiphany Law.  He added, “We think that Epiphany has one of the best track records – and best legal teams – in the country for helping small to mid-sized family businesses maximize their value in a sale or recapitalization, while maintaining the culture that they’ve worked so hard to achieve.”

Epiphany Law, LLC, served as legal counsel to Security Door & Hardware and Security Builders Supply. WCF Advisors, LLC, acted as exclusive financial advisor in connection with the sale.

 

Tax Preparedness in a Sale of a Private Company

I recently had the opportunity to participate in a webcast with four amazing experts on the topic of Business and Tax Preparedness in a Sale of a Private Company.  My fellow experts, Louis Vlahos, Cynthia Romano, Vanita Spaulding and Alex Kasdan were specialists in investment banking, business valuation, restructuring and process improvement and tax law – I was asked on as the corporate law expert.

The focus of the program was how to maximize the value of your business in a sale context.  What was amazing to me was the remarkable underlying consistency of all of the experts in one key area – the time to start preparing for a sale is long before an offer comes along.

Each expert, from the tax lawyer to the process improvement expert was convinced that the only real way to maximize your businesses value was to conduct your business with the ultimate end goal – a transition – in mind.  Whether you are planning to sell your business today or not, there’s a good chance that you’ll get an unsolicited offer in the future – and the future might be sooner than you think.  So it’s critical to ensure that your business is ready to transact, even if you don’t have present plans.  For certain issues, like tax elections, the IRS might look back five years or more in time before deciding whether to honor your election.  For other critical items – like succession planning and talent development – you’ll need a long time to train your team to be ready to run your business.  And from a corporate law perspective, you certainly want to avoid contracts that might pay dividends today, but lock you into a bad deal for the future when a potential buyer comes along.

How then, can you make your company completely “transaction ready”?  While tax preparedness certainly plays a part, that’s a much longer question than we have time for here. There are a number of things to consider and explore.  So, watch out for an upcoming article with some ideas on how to get started with that. In the meantime, you can check out the full webcast here.

You can also contact us with any questions you may have. Our office phone number is 920-996-0000 or you can email us here.