On July 4, the One Big Beautiful Bill Act (OBBB) officially became law, and with it came some of the most M&A-friendly tax reforms in years. Whether you’re a business owner contemplating an exit or a buyer eyeing your next acquisition, these sweeping changes could significantly enhance after-tax economics and valuations, ultimately reshaping deal dynamics.
Which Tax Provisions Could Reshape the M&A Landscape?
- 100 Percent Bonus Depreciation Returns: Businesses can now immediately write off the full cost of new and used tangible personal property placed in service after Jan. 19, 2025. This allows buyers to shield post-acquisition income by allocating more of the purchase price to depreciable assets, thereby boosting ROI and making asset deals more attractive.
- R&D Expense Acceleration: The bill permanently restores immediate expensing for domestic R&D. Even more impactful, businesses with gross receipts of $31 million or less can retroactively expense R&D costs dating back to Dec. 31, 2021, unlocking potential refunds and improving cash flow.
- EBITDA-Based Interest Deduction Cap Reinstated: The cap on net interest deductions is now based on EBITDA (earnings before interest, taxes, depreciation and amortization), not EBIT. This change, with a 30 percent limit starting in 2025, enhances the viability of leveraged buyouts by increasing deductible interest and improving deal cash flow.
- Qualified Small Business Stock (QSBS) Gains Expanded: QSBS rules now offer tiered capital gains exclusions, which are as follows:
- 50 percent after three years
- 75 percent after four years
- 100 percent after five years
The asset ceiling has also increased to $75 million, allowing more businesses to qualify and enabling founders to retain more of their exit proceeds.
- Pass-Through Entity Tax Relief: The state and local tax (SALT) deduction cap has been increased from $10,000 to $40,000 through 2029, with higher income phase-out thresholds. This preserves the value of pass-through entity tax elections and improves after-tax income for many business owners.
What This Means for Buyers and Sellers
Key tax provisions within the OBBB mean a reshaping of the deal economic landscape, with a likely surge to be expected in lower middle market M&A activity throughout 2025 and 2026. For buyers, the new changes mean higher valuations driven by improved after-tax ROI, as well as greater deal value in asset-based transactions due to 100 percent bonus depreciation. Sellers can benefit from enhanced net proceeds, especially for founders planning retirement or recapitalization.
Time to Act – Windham Brannon Can Help
If you’re considering buying or selling a business, now is the time to start planning. Windham Brannon’s Sell-Side Advisory professionals can help you understand how these tax changes create a window of opportunity to enhance value, reduce tax exposure and structure deals more favorably. If you’re looking to understand how these reforms apply to your specific situation and how to position yourself for success in this favorable M&A market, contact your Windham Brannon advisor today, or contact Rodrigo Visbal.
