R&D Tax Credits impact on biz valuation

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June 09, 2022

by a searcher from Gustavus Adolphus College in Minneapolis, MN, USA

Does anyone have resources, insight or experience with R&D Tax Credits and the impact on business valuation?

Seller (manufacturer) includes the credits as an increase in SDE. Obv not an EBITDA add back but dollars do flow.

any help greatly appreciated.

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commentor profile
Reply by a professional
from New York University in New York, NY, USA
The problem with R&D credits is that you need to keep doing R&D. If you cut R&D or don't keep increasing, they can really drop off. It's like 5-6 cents of credit for each dollar spent, plus there's audit risk. I generally tell people to ignore R&D credits unless it's a large amount, especially since they're AMT limited.
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Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
I Googled the topic. I am an M&A Intermediary. I could not find any article on the subject. However, I did find following:
1) As Matt Foreman said, the risk of audit is high
2) If there is unused credit you may not be able to use it in an Asset sale
3) R&D tax credit reduces "effective" tax rate.
So I ran my software (It uses DCF+, a very advanced DCF. It has no market data). In 5 minutes I was able to calculate impact on value at various effective tax rates and deal structures. One table shows EV, the other shows EBITDA multiple. Hope this helps. Happy to dicuss more.
Sales: 5,000, EBITDA: 750 Tax Rate 40% 35% 30% S-Corp Asset 3,251 3,299 3,344 S-Corp Stock 2,995 3,073 3,148 Tax Rate 21% 18% 15% C-Corp Asset 3,204 3,259 3,311 C-Corp Stock 3,119 3,184 3,247

Tax Rate 40% 35% 30% S-Corp Asset###-###-#### S-Corp Stock###-###-#### Tax Rate 21% 18% 15% C-Corp Asset###-###-#### C-Corp Stock###-###-####
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