Private Equity, Portfolio Companies, & Tax Credits

You may be working with a private equity group and their portfolio companies. In addition, your client may be looking at a transaction such as a buy-out or a recapitalization for their business. Tax credits can generate great leverage by reducing taxes and increasing cash in many cases. Here are some examples:

Pre-Transaction — Getting the company ready 2+ years in advance. Things need to be cleaned up, systems need to be upgraded, operations and processes improved. Many of changes may qualify for retraining tax creditsdue to the changes in workflow and business processes and software. Employment increases may qualify for job tax credits.

Portfolio Company — May be held for 5 to 7 years before it is sold. The private equity group’s operating partner may make changes to the company to prepare it for the exit. These changes may include acquiring, integrating or rolling-up with other portfolio companies. Related business activities could involve new systems and software (retraining tax credit), new equipment (investment tax credit) and new jobs (job tax credit). In certain situations tax credits can be applied against state payroll withholding taxes, which will increase cash flow.

Exit/Divestiture — After the company has been sold, it may benefit from tax credits due to changes the new owner will make. If the new owner is located out of state, you can help them greatly with your knowledge of state incentives.

Whether your client is a private equity group or a potential portfolio company, tax credits can be a tremendous benefit for them and providing a large value added service from you. Keep these credits and incentives in mind when you discuss their big deals!