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Which Automotive Vendors Will Be Acquired Before Year End?

With the Bush tax cuts scheduled to end by January 1st, I predict that in the coming weeks weeks there will be a flurry of year end acquisitions in our industry as well as in others. By purchasing companies in 2012, there are significant tax savings that can be realized.

Here is an excerpt from the firm Koly Jesson that explains

The Bush Tax Cuts are scheduled to expire on December 31, 2012, significantly increasing tax rates on ordinary income, capital gains, and dividends. The pending expiration of the Bush Tax Cuts along with tax increases associated with Obamacare will lead to a number of increases in taxes associated with the sale of a business, including:

• The tax rate on ordinary income, which will increase from 35% to 39.6%;

• The tax rate on long-term capital gains, which will increase from 15% to 20%;

• The tax rate on qualified dividend income, which will increase from 15% to 39.6%; and

• Under Obamacare, beginning on January 1, 2013, a high income individual’s passive income is subject to a 3.8% uncapped Medicare tax, and a high income individual’s earned income is subject to an additional 0.9% uncapped Medicare tax.

Therefore, the tax rate on long-term capital gains for high income individuals will be 23.8%, and the tax rate on qualified dividend income will be 43.4%. These tax increases will drive down after-tax proceeds to business owners selling their businesses. Additionally, these tax increases will also likely affect deal terms and transaction structures.

Who Is Getting Ready To Get Hitched?

So within that context, which companies do you think will be gobbled up?

Play matchmaker for a minute and let's see if anyone can predict an upcoming deal.

Brian

Tags: 2012, acquisition, purchases, vendors

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Replies to This ADM Discussion

Permalink Reply by Tom Gorham on November 11, 2012 at 6:17am

Maybe Autotrader will add the final piece to their puzzle by adding a DMS - Reynolds & Reynolds.

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Permalink Reply by Brian Pasch on November 11, 2012 at 1:31pm

Tom

Without the Autotrader IPO, I'm not sure that they have the funds to purchase Reynolds.

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Permalink Reply by Tom Gorham on November 11, 2012 at 7:35pm

What's a few billion dollars? ;-)

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Permalink Reply by Ralph Paglia on November 12, 2012 at 6:06am

I think we will see something announced prior to year end on The Reynolds and Reynolds Company... And, let's not forget that with two years to have digested the Cobalt acquisition, ADP Dealer Services is now due to make an acquisition within the automotive vertical... Look for a company that will bring incremental revenue to ADP's Dealer Services Division.

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Permalink Reply by Scott N. Mynuk on November 12, 2012 at 6:11am

We've seen bigger surprises than this before. Stay tuned in.

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Permalink Reply by Cliff Banks on November 12, 2012 at 8:26am

A couple of rambling thoughts:

1. No secret that ADP could use a viable CRM....not too many left. Do the "math."

2. Reynolds is not for sale, despite the Reuters article a couple of weeks ago.

3. There aren't many buyers left either -- AutoTrader, ADP, DealerTrack, Reynolds -- who hasn't acquired much since 206, maybe Dealer.com could be a buyer, but I think they'd rather sell.

4. There is a lot of private equity cash burning a hole in the pockets, but they're trying to be smart about what to buy.

5. There is potential for a huge surprise or two by the end of the year -- some crazy scenarios being talked about.

6. It's not just vendors -- i think we're going to see some surprise acquisitions on the dealer group side also. Private equity finally has been convinced about the viability of automotive retail and OEMs are starting to realize they'll have to let PE in as investors in their dealerships (doesn't mean they like it, but it's the future).

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Permalink Reply by Joe Webb on November 12, 2012 at 10:15am

PCG Digital Marketing enters the bidding war to purchase DealerKnows Consulting. :)

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Permalink Reply by Tom Gorham on November 12, 2012 at 5:40pm

Wow Joe, is that insider information?

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