This whitepaper discusses several items we consider when appraising a business for estate planning purposes while a transaction process is underway. We review IRS commentary on the consideration of potential transactions in business appraisals for transfer tax purposes. We then provide an overview of the various stages of an M&A process and discuss valuation considerations across each stage. We then review market evidence for success rates of announced deals, and several other factors that should be considered when determining the extent to which the expected proceeds from a potential deal should be considered. We finish with a discussion of the economics of deal proceeds.
Since a business often represents the majority of an owner’s wealth, it is common for owners to consider both exiting the business and engaging in estate planning at the same time.
There are several common estate planning strategies that are useful in a situation when a business transaction process may already be underway. Having a valuation specialist who is knowledgeable of both 1) IRS guidance around transferring ownership in a closely held business when a transaction process is underway, and 2) the proper use of market data to support a valuation opinion is imperative to avoid unintended consequences.
