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Capital Ideas for Middle Market Businesses

Recent Legislation Averting the "Fiscal Cliff"

The American Taxpayer Relief Act of 2012

By David DuWaldt, Managing Director
Los Angeles Office
Corporate Finance Associates

Overcoming the “Private Firm Discount”While individuals throughout the United States were celebrating New Year's Eve, members of Congress were busy negotiating final details of the bill (H.R. 8, as amended) that became known as the American Taxpayer Relief Act of 2012 (ATRA). On January 1, 2013, both houses of Congress had finally put their stamp of approval on the bill and President Obama signed it into law the following day. An earlier version of the bill was passed by the House of Representatives on August 1, 2012, yet it took Congress until the wee hours of the last day of the year to negotiate the final details. It's interesting how a time line is impacted when pressure to act is introduced. So, now that the ATRA has passed, how will it impact individual taxpayers, businesses and estates?

Beginning in 2013, the ATRA provides for Bush-era income tax cuts to continue for individuals with taxable income below $400,000 and married couples with taxable income below $450,000. Taxable income above such levels will be taxed at the rate of 39.6%. Long-term capital gains and qualified dividends for individuals with taxable income below $400,000 and married couples with taxable income below $450,000 will continue to be taxed at a 15% rate. Long-term capital gains and qualified dividends earned by individuals and married couples above such taxable income levels will be subject to a maximum tax rate of 20%.

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Beware of the EBITDA Multiple Trap


By Doug Nix, Managing Director
CFA Toronto, West Office
Corporate Finance Associates

In today's M&A environment, an EBITDA multiple is by far the most common methodology employed to value a privately owned business. It is used because of its simplicity and ease of calculation. In its basic form, the formula is:

EBITDA Multiple x Adjusted EBITDA =
Debt Free Enterprise Value

These days, almost every valuation discussion with business owners and acquirers seems to focus entirely on the EBITDA multiple portion of the formula. This is understandable because there is widespread reporting of EBITDA multiples - its quarterly trends, averages by industry, mid points based on transaction size, etc.

But Mark Twain's words "There are 3 kinds of lies - lies, damn lies and statistics" ring very true in using Reported EBITDA multiples.

A recent review comparing published EBITDA multiples to the actual multiples that were used to calculate transaction values show a marked gap between these multiples. Not surprisingly, in almost every case the published multiples are higher. The question, in the words of Boston Legal's Alan Shore, is "Now why is that?"

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Feature Acquisition


Situation:Torus Freight Systems, headquartered in Richmond Hill, Ontario, is a leading freight management company, focused primarily on moving freight from the United States into Canada. A growing demand from their customer base to manage portions of domestic US freight left them unable to meet the demand. Torus' corporate structure included four shareholders, with the majority shareholder wanting to retire, and the remaining three shareholders desiring to remain with the business but take some money off the table.

Solution: CFA Toronto West was initially hired by Torus in 2008 to sell the company. A competitive bid process was run, and resulted in multiple offers in late-summer 2008. However, as a result of the financial crisis of September and October 2008, the company was taken off the market until a better time. That better time came in June 2012, when the company went back on the market and CFA re-commenced the sale process. CFA contacted a select few prospective strategic buyers, resulting in several offers to acquire the business. A letter of intent was signed late-August 2012 with Texas-based Transplace, a CI Capital Partners portfolio company, looking for a strategic add-on. The sale of Torus Freight Systems to Transplace was completed December 3, 2012.


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