Reflect on the successes in the past year, look to the future of the M&A Source and welcome our 2025 Chair, Kathlene Thiel. LETTER FROM THE 2024 CHAIR
Read personal insights into a career in M&A with our latest member interview. AN INTERVIEW WITH M&A SOURCE MEMBER, SAM THOMPSON
Unpack what makes a “bad” opening offer and learn when to stay silent. AN OFFER YOU MUST REFUSE… TO MAKE
Discover the impacts of having a strong team behind your business sale. THE IMPORTANCE OF A STRONG MANAGEMENT TEAM WHEN SELLING YOUR BUSINESS
and when they come into play in M&A.
Chair’s Letter
What a Year!
Lamar Stanley M&A Source 2024 Chair of the Board
As I pass the baton as M&A Source Chair, I want to take a moment to reflect on what a privilege it has been to serve this extraordinary community of professionals and to offer a heartfelt thank you to all the members, volunteers, and staff of this great organization. Over the past year, I have been inspired by your dedication, collaboration, and the shared commitment to excellence that defines our organization.
When I first stepped into this role, I spoke about fanning the flames of momentum built by those who came before me. Thanks to all of you, those flames have grown into a vibrant fire, illuminating the path forward for M&A Source. Together, we have achieved so much in 2024—from enhancing member benefits and launching new educational initiatives to hosting successful conferences that connect and empower us as professionals.
While this is a moment of transition for me, it is not an end but a continuation. The foundation we have laid together fills me with optimism for what lies ahead. As we welcome Kathlene Thiel as the Chair of M&A Source for 2025, I am confident that her leadership will bring fresh perspectives and continued success to our organization. Kathlene’s dedication and vision will ensure that M&A Source continues to thrive and expand its impact in the years to come.
As we look to the future, I encourage all of you to remain engaged and take full advantage of the incredible resources and relationships this organization provides. Attend the conferences, participate in the courses, and lean into the network of peers who share your vision for success in the lower middle market. The strength of our community lies not only in what we achieve individually but in the collective power of our shared knowledge and experience.
Thank you for the trust you placed in me as your Chair and for the unwavering support that has made this past year so rewarding. It has been an honor to serve, and I am deeply grateful for the friendships, insights, and opportunities I have gained along the way.
Let’s continue building on the successes we’ve achieved and move forward with purpose and pride. I am excited to remain part of this remarkable community and look forward to seeing the great things M&A Source will accomplish in the future under Kathlene’s leadership. Onward and upward!
With deep appreciation, Lamar
Stanley M&A Source 2024 Chair of the Board
As we welcome Kathlene Thiel as the Chair of M&A Source for 2025, I am confident that her leadership will bring fresh perspectives and continued success to our organization. Kathlene’s dedication and vision will ensure that M&A Source continues to thrive and expand its impact in the years to come.
“We’re
Member Interview
An Interview with M&A Source Member, Sam Thompson
Sam Thompson M&AMI, CBI, Transitions in Business
Tell us about your pre-M&A career and how it led you to doing this work?
My previous life has been in the hospitality world. I founded and was owner operator of a conference and event management company for 29 years. As I grew the business I brought on three partners. We found ourselves managing various services for major events such as the Final 4, US Open, Republican Convention, Super Bowl and many large corporate and association conventions. When managing events you are always double and triple checking EVERYTHING. We made sure to think through contingency plans as Murphy’s Law prevailed...anything that can go wrong will go wrong. This experience has served me well as an M&A advisor. In 2010, I started planning my career change. I first worked on removing myself from my business.
My three partners were doing a great job in their individual roles and once they knew I was planning on leaving they were open to taking on some of my duties. I also started attending IBBA Conventions to learn more about the transactions industry. I sold my shares back to the business in 2012. When I left the business was right around $16M in revenue with 150 employees. I immediately joined a Minneapolis M&A firm and started my new career as an
M&A Advisor in 2013. I have found my previous experience as a business owner has helped me tremendously when advising business owners that are ready to sell.
What personal characteristics and strengths have supported your success in this industry?
I have Churchill’s quote, “Never, Never, Never Give Up” in my office and I live by that. Having owned a small business that was deeply affected during 9/11 and the Great Recession I learned how to maneuver through difficult times and come out ahead when all seemed lost. This attitude has helped as an M&A Advisor as most transactions oftentimes need to be redirected to get to the finish line.
What is your greatest M&A accomplishment?
This past year I was able to sell a business for one of my clients at 89% above his expecting price. Needless to say he was ecstatic. The auction process I used was from a class I took at M&A Source. I now use this same process on all of my transactions and the results are always at or above clients expectations.
With regard to the majority of your engagements, do you work as a team or do you handle things on your own?
I always have support help from my employees yet almost all of my transactions I deal directly with the business owner. We have two other advisors in our firm and they deal directly with their clients with support help too. On occasion M&A advisors within our firm may team up together.
Do you just do M&A or do you provide other services – valuations, consulting, etc.?
We mainly offer M&A advising representing the sellers. Many of our engagements will include a valuation for fee, which we deduct from our success fee at closing. There are situations where just a valuation is needed yet that is a very small percentage of our sales.
What is the biggest mistake you have made when working on a deal?
I would say early on in my M&A Advising career I had taken on a client that brought in the buyer. Because of the previous relationship that the buyer and seller had they were communicating at times without me. The seller ended up agreeing to some aspects of the deal with the buyer that they regretted. I quickly learned, no matter what the situation, that I need to be in on all meetings and calls with the buyer and seller.
What are the three most important qualities that you think a good M&A advisor needs to have?
I would say patience is so important. I’m still learning this. In my previous career once a client said let’s go to contract, the meeting or conference usually happened and our services were used. In M&A it never is a done deal until all closing documents are signed and the money is in the bank. Second would be to continue to learn the skill of negotiating. Success in this industry comes to those that can negotiate well. Third would be honesty. I’ve found if you are truthful in everything you do people will trust you and they will want to do business with you (as quoted by Zig Ziglar).
What is your most interesting deal that you are working on today?
I’m working on a manufacturing business with four partners, three of which are not active and are doing nothing for the business except costing the company money. The active owner (my main client) has singlehandedly done amazing things with this business to get it where it is financially succeeding. He’s the most honest guy you’d ever want to meet and he’s interested in staying on with the business (he’s in his 50’s). This business is, as you may expect, drawing a lot of attention from buyers. It’s one of those feel good stories when you see what this one owner has done through hard work and determination. It feels good to know I can help someone like this be successful in an M&A transaction.
How long have you been an M&A Source member and what do you get out of your membership?
I joined IBBA in 2010 when I still owned my event business. I eventually started doing larger transactions and made the decision to have membership with both IBBA and M&A
Source in 2016. By far the education that is offered by M&A Source has tremendous value. I also find the people at the conference are quality people and i enjoy the networking.
As a seasoned M&A advisor, what changes and trends do you see on the horizon that will impact on M&A?
I do think we may eventually see the Boomer Tsunami. Where baby boomers that own businesses will have a maximum exodus. This was the talk when I first became an M&A advisor and the tsunami is yet to hit. I think a main reason is baby boomers just like to work. Knowing the youngest boomer will be 65 in 2030 I do think the next 5-7 years will be very active with boomers deciding it’s time to exit.
What advice would you give to new people entering the profession?
It’s an exciting industry and stay grounded. Continue to get as much M&A education as possible as you can never know too much in this industry. The key is to be networking constantly. I’m always fascinated at how a certain connection, that I didn’t think would go anywhere was the reason for a lead.
Please tell us something about yourself that has nothing to do with your M&A career?
I have a wonderful wife of 36 years and three beautiful daughters and a son-in-law. We have one grandson that is two years old. Our family LOVES to travel and we started a tradition last January to visit a warm climate for a month in January (remember, we live in Minnesota). The first destination was Costa Rica which is where our photo was taken. We’ve yet to decide where we’ll go in January of 2025. We have many ideas!
Sam Thompson President/Owner, Transitions In Business sthompson@transitionsib.com
An Offer You Must Refuse… to Make
THERE ARE MANY SITUATIONS IN BUSINESS NEGOTIATIONS WHERE A BUYER OR SELLER MUST MAKE THE OPENING OFFER, EVEN THOUGH THEY MIGHT PREFER NOT TO. THERE ARE EFFECTIVE TACTICS TO EMPLOY WHEN ONE IS FORCED TO MAKE THE OPENING OFFER, AND I COVER THOSE IN SOME OF MY OTHER MATERIAL. BUT IN THIS ARTICLE, I’D LIKE TO TALK ABOUT THE OPENING OFFERS YOU SHOULD NEVER MAKE. EVER. UNFORTUNATELY, MANY PEOPLE MAKE THESE KINDS OF OFFERS EVERY DAY IN BUSINESS NEGOTIATIONS. AND THE RESULTS ARE TYPICALLY NOT POSITIVE.
Rhett Kniep M&AMI, Centurion 7 Business Advisors
These “bad” opening offers can come in a variety of packages, but most can be grouped into what I call Dummy Offers. There’s two reasons for the name. One, the offers are not genuine, or serious, so they’re like a dummy, or fake. Second, and more importantly, the Dummy Offers are made by dummies, or people who don’t know any better (but should). And how do I know about Dummy Offers? Because I have been the dummy making them, plenty of times, and believe me, the results usually made me feel pretty dumb!
The first Dummy Offer is the “informal offer”. It goes like this: the buyer is looking at the business for sale and is talking and talking and casually mentions to the seller what he thinks would be an appropriate price to pay. Just an informal, off the record, comment. Right?
Wrong. While the buyer thought he was merely whetting the appetite of the seller, to sort of “warm her up” to where he was going to come in at, what he really did was
to set a base standard in the mind of the seller, a rockbottom limit to what the seller should take. Sellers seem to have this innate sense so that whatever price they hear from the mouth of the buyer, it is the lowest possible amount the sale could possibly settle on.
In other words, in the seller’s mind the price negotiation was heading only north from that point in the transaction.
This is done frequently by buyers. Of course, they never intend to lock in a bottom price. But that is exactly what happens. The “informal offer” is an uninformed offer, and should never be made, unless it is part of the plan of the buyer for other reasons (but that is a different subject altogether).
When you are in a business negotiation, you have to consider everything you say to be something you would write, because the opposing parties don’t forget. If it works to their advantage, they will remember it and they will surely hold you to it later on.
Another Dummy Offer, often made in preliminary business negotiations, is the “range offer”. Like the informal offer, the range offer sets expectations in the mind of the other party that are hard to break. I’ll share an example:
A buyer is looking at a business to buy. The buyer gets a meeting with the seller and in the course of conversation, the seller asks her what she thinks the business is worth. The buyer, thinking that this is part of the normal process of arriving at a price blurts out, “Oh, in the range of 5 to 700 thousand.”
The buyer thinks she just told the seller she might be willing to pay more, but hopes to get the business for closer to $500,000. But it’s not what the seller heard. All he heard was: “This business is worth AT LEAST seven hundred thousand dollars to her”.
Like the informal offer, the range offer alerts the seller to a price, and the seller’s expectations are set based on what he hears the buyer say. The “range” offer doesn’t
really communicate an estimate of how much the business is worth; it communicates a number that is either at the very top, or at the very bottom, and it becomes the starting point for all future negotiations.
This principle of Dummy Offers applies both ways. The examples above illustrate misunderstandings by sellers, but in the same way buyers can get the wrong idea when a seller shares his or her mind prematurely.
Astute buyers and sellers recognize the learning and implementing of effective negotiation skills involves knowing when to be silent and when to share one’s intentions with the other party. Doing it properly can bring significant beneficial results, while ignoring it might get you stuck with an offer you can’t refuse… because you already made it.
Rhett Kniep M&AMI, Centurion 7 Business Advisors
“When you are in a business negotiation, you have to consider everything you say to be something you would write, because the opposing parties don’t forget. If it works to their advantage, they will remember it and they will surely hold you to it later on.”
The Importance of a Strong Management Team When Selling Your Business
WHEN IT COMES TO SELLING A BUSINESS, MANY FACTORS INFLUENCE THE FINAL SALE PRICE AND THE SUCCESS OF THE TRANSACTION. ONE CRITICAL ELEMENT THAT MAY OFTEN DETERMINE THE ATTRACTIVENESS OF A BUSINESS TO POTENTIAL BUYERS IS THE STRENGTH AND STABILITY OF ITS MANAGEMENT TEAM. AT TOUCHSTONE ADVISORS, WE RECOGNIZE THE PIVOTAL ROLE A COMPETENT MANAGEMENT TEAM POTENTIALLY PLAYS IN THE SALE PROCESS. HERE’S WHY HAVING A STRONG MANAGEMENT TEAM MAY BE BENEFICIAL WHEN SELLING YOUR BUSINESS.
By Steven Pappas M&AMI, Touchstone Advisors
Continuity and Stability
A robust management team typically helps to ensure continuity and stability, which is often highly appealing to buyers. Buyers usually are more likely to invest in a business where they see a capable team in place that potentially can continue operations smoothly postsale. This continuity helps to reduce the perceived risk associated with the transition of ownership and also helps to provide confidence that the business will remain stable and profitable.
Operational Expertise
Experienced managers typically bring a wealth of operational expertise that may be invaluable to the running of the business. Their deep understanding of the company’s processes, customer relationships, and market dynamics may assist them in maintaining and possible even improve performance during and after the sale. This operational knowledge helps to reassure buyers that the business may be able to sustain its success independently of the current owner.
Strategic Vision
A strong management team often has a clear strategic vision for the future. They may often be able to articulate growth opportunities, market expansion plans, and innovative initiatives that may possibly drive the business forward. Buyers typically are attracted to companies with leadership that not only manages day-to-day operations effectively but also has a roadmap for future success.
Enhanced Valuation
The presence of a skilled and dedicated management team can possibly significantly enhance the valuation of your business. Buyers potentially are willing to pay a premium for businesses that come with a proven team capable of delivering results. This could translate into a higher sale price and better terms for the seller.
Smoother Transition
The transition period following the sale of a business can be challenging. A strong management team may be able to facilitate a smoother transition by providing continuity in leadership. They may also help integrate the new ownership while maintaining employee morale
and customer satisfaction. This stability is often crucial for minimizing disruptions and ensuring a seamless changeover.
Mitigating Risks
A competent management team may help to mitigate various risks associated with the sale. Their ability to possibly handle operational challenges, navigate market fluctuations, and manage internal dynamics helps to reduce the overall risk profile of the business. This potentially makes the business more attractive to risk-averse buyers and could increase the likelihood of a successful sale.
Attracting Quality Buyers
Quality buyers typically look for businesses with strong leadership. They often want assurance that the company will be able to thrive without the original owner’s direct involvement. A capable management team may provide signals that the business is wellmanaged and potentially poised for continued success, possibly making it more attractive to serious and highquality buyers.
Conclusion
The importance of a strong management team when selling your business cannot be overstated. They may provide continuity, operational expertise, and strategic vision, all of which may possibly be critical to attracting quality buyers and potentially achieving a successful sale. At Touchstone Advisors, we understand the value that a competent management team brings to the table. We work with you to highlight the strengths of your team, helping to ensure that potential buyers recognize the full value of your business. By showcasing a robust management team, you potentially enhance your business’s attractiveness and maximize your return on investment.
Steven Pappas M&AMI, Touchstone Advisors
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Top 10 Tax Code Provisions Every M&A Advisor Should Know
TAX IMPLICATIONS CAN MAKE OR BREAK MERGERS AND ACQUISITIONS (M&A) DEALS. FOR M&A ADVISORS, UNDERSTANDING THE NUANCES OF KEY TAX PROVISIONS IS CRITICAL TO STRUCTURING TRANSACTIONS THAT BENEFIT ALL PARTIES INVOLVED—BUYERS, SELLERS, AND STAKEHOLDERS ALIKE. WHETHER IT’S A MATTER OF REDUCING LIABILITIES, OPTIMIZING CASH FLOW, OR AVOIDING UNINTENDED TAX CONSEQUENCES, THESE PROVISIONS CAN PLAY A CENTRAL ROLE IN ACHIEVING FAVORABLE OUTCOMES. IN THIS ARTICLE, WE’LL EXPLORE TEN ESSENTIAL TAX CODE PROVISIONS THAT EVERY ADVISOR SHOULD KNOW AND HOW THEY CAN BE LEVERAGED EFFECTIVELY IN M&A TRANSACTIONS.
By David Dejewski Transworld Business Advisors of Frederick, Owings Mills, and Columbia
We’ve previously discussed these provisions in detail on the M&A Source Podcast —a two-part series focused on their practical applications. If you haven’t tuned in yet, consider listening for a deeper dive, complete with examples and insights from real-world deals. In this article, we’ll walk through each provision in narrative form to provide context, clarify their benefits, and explain when they come into play.
Section 338:
Treating Stock Purchases as Asset Purchases
Section 338 is a tool that allows buyers to treat a stock purchase as if they acquired the business’s underlying
assets. This can be a game-changer for buyers because it enables a “step-up” in basis for tax purposes, which means the assets are revalued at their fair market value. From there, the buyer can take advantage of increased depreciation and amortization deductions, reducing future tax liabilities.
However, there’s a trade-off. Sellers may face higher tax burdens because the transaction is treated as an asset sale, triggering ordinary income on certain components of the deal. This dynamic often makes Section 338 a negotiation point during M&A discussions. Timing is also critical—this election must be filed within 8.5 months of closing, so it’s important to plan early in the transaction process.
Section 1202:
Qualified Small Business Stock Exclusion
Section 1202 is designed to reward long-term investments in small businesses. For M&A advisors working with C corporations, this provision can be especially powerful. It allows taxpayers to exclude up to 100% of capital gains on the sale of qualified small business stock (QSBS), provided the stock is held for at least five years.
To qualify, the company must operate as a C corporation in an eligible industry and meet specific criteria related to gross assets. Industries such as technology, healthcare, and manufacturing typically qualify, while service-based businesses do not. This provision offers sellers significant tax benefits, and as an advisor, it’s worth exploring whether clients’ transactions meet the requirements.
Section 197:
Amortization of Intangibles
Intangible assets are a staple in M&A transactions. Goodwill, trademarks, patents, and franchise rights all fall under Section 197, which governs the amortization of these assets. The provision requires buyers to amortize intangibles over 15 years on a straight-line basis.
For buyers, this provision provides a predictable tax deduction, improving cash flow post-acquisition. However, advisors need to ensure the purchase price is carefully allocated to avoid disputes with tax authorities. Internal goodwill developed by the seller cannot be amortized, so it’s critical to clarify which intangibles qualify under this section.
Section 280G:
Golden Parachute Payments
Change-of-control events like mergers often involve large compensation packages for executives. Section 280G imposes a 20% excise tax on “golden parachute payments” that exceed three times the executive’s average compensation over the previous five years.
For advisors, this provision raises two primary concerns: ensuring compliance with the tax code and structuring deals to avoid unintended penalties. Shareholder approval can help mitigate excise taxes, but it’s important to carefully evaluate compensation agreements before a deal closes.
Section 382:
Limitation on Net Operating Losses (NOLs)
Net operating losses (NOLs) can be valuable assets in M&A transactions. Section 382 limits the ability to use NOLs after a significant ownership change (defined as more than a 50% shift in ownership). The annual limitation on NOL usage is calculated by multiplying the company’s fair market value by the IRS’s long-term tax-exempt rate.
For buyers looking to offset future income, this provision is a key consideration. As an advisor, you’ll need to assess whether NOLs are a strategic part of the deal and calculate the limitations to ensure they’re usable posttransaction.
March 4-20, 2025
Section 368: Tax-Free Reorganizations
Section 368 is all about enabling tax-efficient corporate reorganizations. Whether it’s a merger, acquisition, or another type of restructuring, this provision allows transactions to proceed without triggering immediate taxes—provided certain conditions are met.
The key requirements under Section 368 are continuity of interest and continuity of business enterprise. Continuity of interest means shareholders of the target company must retain a meaningful stake (generally at least 40%) in the acquiring company. Continuity of business enterprise ensures that the acquiring company continues using the target’s assets or operations.
By deferring taxes, Section 368 promotes economic efficiency and business continuity. Advisors must carefully structure transactions to meet these requirements and document them thoroughly to avoid disqualification.
Section 409A: Deferred Compensation
Section 409A governs deferred compensation plans, which are common in M&A transactions involving executives. This provision imposes strict rules on when income can be deferred and when payments can be made. Non-compliance triggers harsh penalties, including immediate taxation, a 20% excise tax, and interest.
For advisors, reviewing deferred compensation plans during due diligence is essential. Triggering events like change of control must be planned for, and payment schedules must align with Section 409A requirements to avoid unintended consequences for both the company and its key employees.
Section 1031: Like-Kind Exchanges
Section 1031 provides a valuable opportunity to defer capital gains taxes on real property exchanges. If a business sells one property and purchases a similar “like-kind” property, capital gains taxes can be deferred, provided strict timelines are followed.
This provision is especially relevant for real estateheavy businesses. However, it requires careful planning, as sellers must identify replacement properties within 45 days and complete the exchange within 180 days. Advisors should ensure clients work with experienced professionals to avoid disqualification.
Section 721: Contributions to Partnerships
Section 721 facilitates the formation of partnerships by allowing individuals or entities to contribute property in exchange for partnership interests without triggering immediate tax consequences.
The property’s tax basis and holding period carry over to the partnership, creating a tax-neutral environment for joint ventures and resource pooling. However, contributions of encumbered property or disguised sales can complicate matters, so advisors should carefully evaluate contributions for compliance.
Section 453: Installment Sales
For sellers offering flexible financing to buyers, Section 453 allows capital gains taxes to be deferred and spread over the payment period. Instead of paying all taxes in the year of sale, sellers recognize gains proportionally as payments are received.
This provision provides a cash flow advantage for sellers and often makes flexible deal terms more feasible. However, depreciation recapture must still be recognized immediately, and for high-value sales exceeding $5 million, Section 453A imposes an interest charge on deferred tax liabilities.
As an M&A advisor, understanding these ten tax code provisions may empower you (with the help of your professional advisor team) to structure deals that align with your clients’ goals. Whether you’re helping a buyer optimize post-acquisition cash flow through a Section 338 election or guiding a seller on leveraging Section 453 installment sales, these tools can add significant value to your advisory work.
For a deeper exploration of these provisions, check out the two-part M&A Source Podcast series, where each section is broken down with practical examples and downloadable resources. Tax planning in M&A is a team effort—collaborating with tax professionals and legal advisors ensures that your clients reap the full benefits of these strategies.
By mastering these provisions, you’ll be better equipped to navigate the tax complexities of M&A transactions, enabling smarter, more efficient deals for buyers and sellers alike.
By David Dejewski Transworld Business Advisors of Frederick, Owings Mills, and Columbia
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