Kison Patel is the Founder and CEO of M&A Science, with a strong desire to advance the M&A industry. For ten years, he worked as an M&A advisor, selling larger companies such as commercial banks and hotel chains. He founded DealRoom, an M&A lifecycle management platform, in 2012 after noticing that teams lacked efficient technology to manage deals. In 2016, he launched the M&A Science podcast, devoting his time to building a platform where all of the best practitioners could share their best practices and lessons learned from real-life transactions. Kison then founded The M&A Science Academy in 2020 to provide step-by-step training to those seeking to master M&A through courses created by top-tier practitioners. Kison aims to improve practices in an industry with increasing market pressures, transaction values, and competition by developing technology, educational content, and industry training.

 

Episode Highlights Here:

 

Kison Patel:

I think given that it’s the circumstance of an exit, which is really unique on its own, you kind of got a high-paying job and you just want to manage that on annual basis. This is a one-time deal.

Pierce York:

What are some of the tax strategies that you guys use to help them not have to pay the capital gains tax?

Kison Patel:

So if you’re thinking capital gains, you’re thinking more like a private company. Most transactions, at the end of the day, could be a Founder, who started the business and they’ve gotten to that point, it’s time to sell it. It still could be family-owned, and even a midsize business for the second or third generation has it and it’s still privately owned, the corporate sides a little bit different. But even in that situation, you sold it to a bigger company, you got these big challenges, capital gains. So that’s some of the stuff I’m learning. The fundamentals I know is like, the obvious is, you’re going to have some taxes, do things that you don’t think about it like, what’s your local state obligations, because it may be worth for you to relocate. If it’s going to be that big of an exit, you may be surprised and how much of a difference that would make. I’ve seen founders that literally relocate to Texas, or otherwise, no state income, then I guess you got your other means through when it comes to a private company, it seems like you have the right size and threshold to do some of these vehicles. But setting up those trusts that certain states are a little friendlier about being able to manage your funds there. But I disclaim all this, but just this is stuff I hear. I’m not a professional tax advisor on this stuff. I think there are some cool vehicle peers that you’re a lot more familiar with, regarding it. But I think given that it’s the circumstance of an exit, which is really unique of its own, it’s not, you kind of got a high-paying job, and you just want to manage that on annual basis. This is a one-time deal. Whether it’s a seven-figure, eight-figure, nine-figure, or ten-figure exit. I mean, that that nature of it is how do you handle it, because people, you want to sort of retain the value you created. I think there are objectives to it too because a lot of people aren’t just gonna get buried with all that cash. Understanding what are some of your long-term goals is a portion of that geared towards social causes because then you can start thinking of that, and that’s like a cleaner transaction if you can put that into a foundation earlier. Knowing that’s sort of here’s your goal if you’ve done your family succession planning there, and you’re like, this is what I want to do is give back to the causes and things like that, then you can find that earlier. As I said, make it a lot cleaner, easier. So those are just some general things. They’re like, pretty one-on-one common stuff that comes up for folks that I talked through that go through exits. I had a small one. Even then it was just more of working through the counting. Because it’s a lot of people’s portfolios of checks and balances. So it’s very unique to each person. I’d be curious to hear what have you seen? Have you seen anything unique for those scenarios?

Pierce York:

So, one of the cool things that we do over here at Capital Gains Tax Solutions is, leverage a strategy called the Deferred Sales Trust. It’s not to be confused with a Delaware Statutory Trust, but it essentially allows you to exit any highly appreciated asset, including a business or a stock or highly appreciated primary real estate or commercial real estate, and defer the tax and put it into an investment, business trust, essentially, that you can basically kind of use to fund some other investment projects. So, for example, we had a gentleman who sold a two-a-half million-dollar business, and his basis was zero. He said he deferred a $600,000 in tax or so. He put that into a community development project in Tennessee, where they’re building 20 to 72 multifamily units. So you can defer the tax and you can invest it in other places and all that kind of stuff. What’s interesting is the carryover, I use it down here in Newport Beach. What’s really unique about the Newport Beach area is that there are so many homes that are primary homes that have just shot up in so much value over the past few years. It’s just such a highly appreciated market in California. So, tax burden heavy state that these people, for example, we had a gentleman that bought two houses on the beach in the 90s. His basis was like 1.2 million bucks, he’s trying to sell him for $11 million. That’s like a $4 million capital gains tax after you account for the depreciation and all that kind of stuff like that. So four of the $10 million you’re gonna make is going to the government, real estate agents down here who have this competitive advantage, like Mr. Seller, you can literally say $4 million, listing your property with me. Even if I sell it for million bucks, less, 2 million bucks less, you’re still gonna get an extra $1.5 million going with me, like on the back end, like because it’s not about what you make, it’s about which key. So, you know, in your world, in M&A temporary ones don’t really exist. You can’t really1031 a business, right? So, what do you do, if you have some sort of value add where you’re like on top of that, like, I can save 30% on your taxes? You don’t have to move to Nevada. You can if you want to, but you don’t have to right? Might still be a good play if you’re moving out of California, but that’s a huge competitive advantage. So talking about that cross-industry type of conceptual move could be really interesting for you.

Kison Patel:

Those are always interesting. As I said, I think that’s kind of why it’s so important. You got to work with some tax advisor when you’re going through that early, early. 

Pierce York:

Early is definitely the key.

 

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About Kison Patel

 

Career Opportunities in M&A Industry, Awareness to the Impacts of M&A to Employees as a Business’ Life Event. with Kison PatelKison Patel is the Founder and CEO of M&A Science, with a strong desire to advance the M&A industry. For ten years, he worked as an M&A advisor, selling larger companies such as commercial banks and hotel chains. He founded DealRoom, an M&A lifecycle management platform, in 2012 after noticing that teams lacked efficient technology to manage deals. In 2016, he launched the M&A Science podcast, devoting his time to building a platform where all of the best practitioners could share their best practices and lessons learned from real-life transactions. Kison then founded The M&A Science Academy in 2020 to provide step-by-step training to those seeking to master M&A through courses created by top-tier practitioners. Kison aims to improve practices in an industry with increasing market pressures, transaction values, and competition by developing technology, educational content, and industry training.

 

 

 

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