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Transactions

BluTrust offers comprehensive transaction services, including exit planning, M&A, and financing. We provide valuation for IPO preparation, guiding businesses in growth strategies. Let us support your next adventure.

Types of Transaction Valuations:

M&A for SMEs

Identifying a buyer in a merger and acquisition (M&A) can be tough for small business owners because they do not have a brand, market share, or transparency of corporate governance.

It is more common for owners to offer majority stakes and control to long-term employees.

What makes mergers and acquisitions successful?

From a buyer’s perspective, there are several economic reasons why a company may make a good investment. The four most common reasons are:

  • Extending their market
  • Extending their product or service offering
  • Taking out competitors; and/or
  • Improving supply chain efficiency.

There can be a combination of these two intents, as they are not mutually exclusive. Due to the lack of economic intent expressed by the potential buyer, succession acquisitions are not really considered real mergers or acquisitions. In contrast, the interests of the employees who “acquire” the company may just be to perpetuate the existing business, which is an imbalance of interests, since for the seller, it is a way to retire and receive a post retirement pay out, while for the employees, it could be remodeled towards one of four economic objectives.

It will be much easier to negotiate and value your company if you know the buyer’s economic intent.

Purchase or Sale of Interest

Benefits of using valuations for the sale or purchase of equity interest

It is common for owners of companies to sell their equity interests for a variety of reasons: to raise capital, to support a shareholder buy-out, to establish a share value or comply with buy-sell agreements, or to exit the business. Additionally, companies may consider buying partial or whole interests in other companies in order to expand geographical markets, diversify product lines, or improve supply chains. By having the interest valued by a qualified, independent valuator, key decision-makers can determine whether the sale or purchase of equity will deliver the expected value.

In order to sell or buy equity interests, buy-sell agreements often require an independent, qualified appraisal. Regardless of whether an appraisal is required by corporate governance policies, owners and executives should obtain an opinion from an independent valuator whenever transactions in equity interests occur or are being considered, including:

  • When minority shareholders may scrutinize a potential transaction
  • A transaction that may present a conflict of interest
  • When one class of securities is perceived as unfairly benefiting or impairing another
  • Whenever similar transactions are conducted at different prices or with different structures
  • If the board or executive team wishes to provide owners with a high level of transaction “diligence”
  • In the event of a transaction between related entities
  • When equity is used to compensate employees

Why BluTrust?

BluTrust’s experience includes valuing small to large companies in a variety of industries, including manufacturing, professional services; healthcare; technology; construction and engineering; food services; consumer goods distribution, transportation and logistics.

We have extensive experience valuing the transfer of equity interests for both buyers and sellers, including all situations listed above.

Capital Allowances

Deductions for the decline in value of depreciating assets are available under the Uniform capital allowance (UCA) system. In addition to the rules for depreciating assets, deductions are allowed for certain other capital expenditure.

Small business entities have the option of choosing simplified depreciation rules. Under these rules, small business entities can claim an immediate deduction if the cost is below the relevant threshold or else add the asset to the small business depreciation pool.

Land, trading stock and most intangible assets (excluding exceptions such as intellectual property and in-house software) are not depreciating assets.

The decline in value is generally calculated by spreading the cost of the asset over its effective life, using one of two methods:

Prime cost method – decline in value each year is calculated as a percentage of the initial cost of the asset
Diminishing value method – decline in value each year is calculated as a percentage of the opening depreciated value of the asset
MORE: Australian Taxation Office (ATO) Decline in value calculator.

For most depreciating assets, taxpayers can either self-assess the effective life, or use estimates published by the ATO. Taxpayers can recalculate, either up or down, the effective life of an asset if the circumstances of use change and the effective life initially chosen is no longer accurate. An improvement to an asset that increases its cost by 10% or more in a year may result in an obligation to recalculate the effective life of the asset.

Decline in value of cars is restricted to the car limit. From 1 July 2022, the luxury car tax threshold for luxury cars is $64,741 (it was $60,733 for the year commencing 1 July 2021). Luxury car leases are treated as a notional sale and purchase, with decline in value restricted to the car limit.

The decline in value of certain depreciating assets with a cost or opening adjustable value of less than $1,000 can be calculated through a low-value pool. The decline in value for depreciating assets in the pool is calculated at an annual diminishing value rate of 37.5%.

Changes for 2022 and 2023

From 12 March 2020 until 31 December 2020, the asset cost threshold for the instant asset write-off (which is usually only available to small business entities) has increased from $30,000 to $150,000 and the eligibility criteria expended to cover entities with an aggregated turnover threshold of less than $500 million (up from $50 million).

Further, from 12 March 2020 until 30 June 2021 the Backing business investment measure applied to businesses with aggregated turnover below $500 million and provides either:

A deduction of 50% of the cost or opening adjustable value of an eligible asset on installation (existing depreciation rules apply to the balance of the asset's cost), or
For businesses using a small business depreciation pool, a deduction of 57.5% of the cost of the asset in the first year, with the balance added the asset to the small business pool
In addition, from 6 October 2020 to 30 June 2023, full expensing applies to allow eligible businesses with an aggregated turnover of less than $5 billion to deduct the full cost of new eligible depreciating assets. For businesses with aggregated turnover of less than $50 million, full expensing also applies to eligible second-hand assets.

Activity Statement

Businesses use activity statements to report and pay a number of tax obligations, including GST, pay as you go (PAYG) instalments, PAYG withholding and fringe benefits tax. Non-business taxpayers who need to pay quarterly PAYG instalments also use activity statements.

Activity statements are personalised to each taxpayer to support reporting against identified obligations.

Activity statements for businesses may be due either quarterly or monthly. Generally, businesses can lodge and pay quarterly if annual turnover is less than $20 million, and total annual PAYG withholding is $25,000 or less. Businesses that exceed one or both of those thresholds will have at least some monthly obligations. Non-business taxpayers are generally required to lodge and pay quarterly.

Taxpayers with small obligations may be able to lodge and pay annually. Some taxpayers may receive an instalment notice for GST and/or PAYG instalments, instead of an activity statement.

The Australian Taxation Office (ATO) web site provides instructions on lodging and paying activity statements. Detailed instructions are provided for each of the different tax obligations:

GST (Goods and Services Tax)
PAYG (Pay As You Go) Instalments
PAYG (Pay As You Go) Withholding
FBT (Fringe Benefit Tax)
LCT (Luxury Car Tax)
WET (Wine Equalisation Tax)
Fuel Tax Credits