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Posts tagged Business Valuation
Move to Make Permanent the QBI Deduction Gains Steam

More than 100 business groups have come out in support of new legislation to make permanent the 20% qualified business income (“QBI”) deduction for pass-through entities (“PTEs”), according to a release from the S Corp Association. IRC Code Section 199a allows a 20% write-off of QBI for certain sole proprietors, owners of S corporations, and members of partnerships/LLCs. Introduced by Senator Steve Daines (Montana), the “Main Street Certainty Act of 2019”—S. 1149—is the companion bill to H.R. 216, bipartisan legislation introduced by Representatives Jason Smith (Missouri) and Henry Cuellar (Texas) in the House of Representatives.

The QBI deduction in the Tax Cuts and Jobs Act affects businesses’ cash flow, operations, and long-term strategy, which impact valuations of businesses that range from mom-and-pop stores to private equity investors. While the new tax law provided permanent tax relief to C corporations, which saw their tax rate slashed from 35% to 21% and an end to U.S. taxes on much of their foreign profits, PTE owners got only temporary relief under the law’s individual tax provisions, which are due to expire after 2025.

Private-Company Selling Price/EBITDA Median Is 4.4x, Per DealStats

The median selling price/EBITDA multiple across all industry sectors is 4.4x, according to the 2Q 2019 DealStats Value Index (DVI). As the graph shows, EBITDA multiples are highest for the information sector (11.1x) and the mining, quarrying, and oil and gas extraction sector (8.4x). Meanwhile, the lowest EBITDA multiples are in the accommodation and food services (2.6x) and the other services sectors (3.0x).

To see the selling price/EBITDA by sector graph click here. The DealStats Value Index (DVI) summarizes valuation multiples and profit margins for private companies that were sold over the past several quarters.