The Democrats recently released their proposed tax plan, which contains President Joe Biden’s ‘Build Back Better’ initiative. Boiled down, Biden’s agenda is aimed at creating jobs and cutting taxes for working families, which will be paid by larger corporations and wealthier individuals through yet another tax increase.
Nothing has been passed yet, but it is important to understand how this tax plan could impact you, especially as it pertains to your present estate plan. Here is a breakdown.
Estate and Gift Tax Exemption Changes
In 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA) into law, which doubled transfer tax exemptions to $10 million. This was adjusted for inflation, so in 2021, the exemption was $11.7 million per person and $23.4 million per married couple. Biden’s proposed tax plan will reduce this by more than half starting at the beginning of 2022, making it $5 million per donor and $10 million per married couple. If you want to take advantage of these higher exemptions, consider making gifts before the end of the year.
Valuation of Non-Business Assets
As part of one’s estate planning strategy, it is common to transfer minority interests in family holding entities that are funded with cash and marketable securities to take advantage of minority discounts. However, under this new agenda, only operating businesses will be able to enjoy this benefit.
If the new tax plan passes, interests that are transferred must be appraised in two phases. First, non-business assets should be valued like they were coming directly from the transferor, meaning no valuation discount will be applied. Second, the interest will be valued using the “willing buyer-willing seller analysis”, but the value of any non-business assets will be disregarded.
Transactions for Grantor Trusts
If enacted, this legislation will likely include changes to how grantor trusts are taxed. Traditionally, there has been no capital gain on the sale of appreciated assets, and interest payments for the associated promissory note were also not taxed. Section 1062 of this new agenda would require that gains be recognized on these sales, but there would not be any recognition of losses.
This legislation could also impact what grantor trusts remain viable for estate planning. It may be wise to accelerate your planning, as any changes before the date of enactment would be grandfathered in under the new law.
Valuation of Total Assets
The Democrats have proposed some major changes under their latest tax plan. We advise obtaining a qualified appraisal before the possible 50 percent reduction in gift tax takes place on January 1, 2022. At Appraisal Economics, our team of experts can help families and business owners understand their current tax exposure.
A solid estate tax planning strategy is always recommended, regardless of the asset classes involved. Planning for succession can also be a vital part of this strategy. Contact Appraisal Economics today before this new potential legislation goes into effect!
Since the Supreme Court ruling earlier this year, the collegiate atmosphere has been alive with expectation, and perhaps a little trepidation. With their own name, image, likeness (NIL) rights finally secured, college athletes are being exposed to many new opportunities.
Students are now eligible to monetize their NIL even in states that have not yet chosen to adopt the law on a state level. Events on campuses or in public arenas in those states may be subject to individual state policies, but these situations are being addressed as they arise.
Along with the freedom to earn a profit from their image, student athletes also find themselves face to face with unexpected fame. The fandom mentality has been exacerbated through various social media and other publicity stunts. For example, some of the first NCAA female athletes, the Cavinder twins, have increased followers and profits through various media campaigns. Basketball stars Haley and Hanna depicted the profitability of their endorsement deal with a nutritional snack company through Instagram. Volleyball players Adelaide Halverson and Alex Glover posted similar shots on their social media pages. Thus, preliminary evidence seems to suggest that female athletes are prone to utilizing their physical attributes along with their name, image, and likeness to boost merchandise sales.
Despite the fact that her peers are opting for fame and recognition, Lexi Sun has taken a different route. Under the new NIL guidelines, the Nebraska volleyball player has opted for multiple merchandising opportunities. Much like her male counterparts, Sun negotiated lucrative deals with apparel manufacturers and promotional items bearing her likeness. Each of the most successful college athletes have worked independently or with an agent to create their own brand. Due to their lack of experience and business acumen, student athletes need specific guidance to ensure their success. With a little sound financial planning early on, these college athletes could have their future well established before they earn their undergraduate degree.
Charting a New Course
The full scope of name, image, and likeness value can be easily misinterpreted. Merchandising opportunities come with certain obligations, such as personal appearances, which must be considered when determining the overall profitability of a particular deal. Some opportunities, typically associated with food and beverage endorsements, are more restrictive in nature. Athletes under contract may be required to refrain from indulging in specific, competing brands. Since these requirements could impact normal behaviors, they must be well compensated. Engaging in a potential contract negotiation involving NIL is confusing for most people, especially inexperienced students overwhelmed by the entire process.
Such relevant and complex factors of NIL opportunities are difficult to unpack. At Appraisal Economics, we have extensive experience with NIL valuations. We help our clients, as well as their agents and families, understand the full potential of endorsement contracts.
Nearly every CEO and entrepreneur has a vision for their future growth. Scaling a business requires several distinct ingredients. For most emerging companies, a combination of organic growth and acquisitions yield the best results. In recent months, pandemic conditions and recovery efforts have led to a sharp rise in mergers and acquisitions. Here is a brief overview of what has transpired this year.
Special Purpose Acquisition Companies Fuel M&A Activity
In just the first half of 2021, the number of deals worth more than $5 billion surpassed the total activity for the previous year. Financial and healthcare industries topped the charts, accounting for nearly half of the mega deals occurring this year. In many cases, these transactions were opportunistic in nature. In other circumstances, an acquisition was the only viable way for a company to avoid bankruptcy or full closure.
Special purpose acquisition companies, or SPACs, are partly responsible for this M&A growth. These groups are empowered to make major financial decisions on behalf of an investor or syndicate of investors. Leaders or trustees have a fiduciary responsibility to seek out and research potentially profitable investment opportunities. In most cases, upfront contracts require that a SPAC make recommendations or return the initial investment deposit within a set time period.
Upcoming Trends in M&A
As international financial markets begin to regain stability in the wake of an ongoing pandemic, new trends are starting to appear on the horizon. An increase in IPOs and a rebound in the housing markets are two big indicators that business and industry are operating with a renewed positive outlook. Employment forecasts are another indicator of consistent and stable growth.
Even as new businesses emerge and others are still in the conceptualization phase, many are reaching the age of maturity. The latter is ripe for change. Part of the transformation could be absorbing a new company or merging with a competitor. Acquisitions in this phase are usually due to business owners or CEOs who are no longer interested in pursuing continued growth. They prefer to slowly retire from the public eye while keeping their brand, or some part of it, relevant and active.
What is the True Value of a Merger?
Savvy investors must temper the excitement of potential earnings with adequate due diligence. Not every opportunity is as lucrative as it may appear on the surface. Understanding hidden debts or other financial pitfalls is just as important as uncovering raw talent or profitable processes and resources. A full financial valuation will reveal all the relevant pros and cons associated with a merger or acquisition.
Appraisal Economics specializes in a variety of M&A valuations including fairness opinions, purchase price allocations, and solvency opinions. Armed with complete and accurate information, investors can make sound financial decisions for their future.
The Marijuana Tax Act of 1937 officially outlawed the growth, production, sale, and general use of the controversial plant. Fast forward to Spring 2021 and the federal government passes a law allowing banks to legally and equitably service the financial needs of businesses within the cannabis industry. How did this entire industry cause Congress and the House to turn over a new leaf?
Washington and Colorado were the first states to legally permit the recreational use of cannabis. It has barely been a decade since these landmark decisions were made from the State level, but the following changes have been monumental and continue to evolve. Growing public acceptance toward the personal and medical use of cannabis has been the biggest catalyst to more lenient laws at the local and federal levels.
Generational peer pressure has also given way to sound data analysis as a way to promote the public acceptance of cannabis. The natural and arguably effective medical benefits have sparked renewed interest from researchers and medical professionals. The result? Recreational and medical use is now so widely accepted that there are few restrictions on location or frontage for brick and mortar locations.
The medical benefits of cannabis products have been touted by business owners, medical professionals, and marketing executives alike. Tablets, oils, lotions, and even food products are being used fairly equally among several different demographics. Ease of use and apparent abundance have made hundreds of products available for people, and even their pets.
Creative marketing within the cannabis industry has quickly boomed, creating new levels of interest for both consumers and investors. Cutting-edge marketing companies have quickly created brand identities and helped develop franchise opportunities for the cannabis industry. Growth and development at this level, which includes everything from packaging to external signage, has made a huge impact on how business leaders see opportunities in the industry.
Lucrative Business Opportunities
Countless farms, harvesting technology companies, and marketing companies have taken their cannabis businesses public. IPOs consistently gained traction and sparked others within the industry to use active markets to raise capital. The obvious next step is for regulated financial institutions to become part of the industry.
Business owners and lenders who are now on board with the growth potential are looking for ways to evaluate their investment risk. Individual investors can track their earnings through individual company stocks. Larger and corporate investors will need a bit more research before backing a cannabis-oriented company.
Valuation reports within the cannabis industry are fairly new and must be considered with many relevant factors. Existing business opportunities may come with previous debts and outstanding promissory notes. Businesses that began without the benefit of a qualified banking institution may have complex financial and tax records. A complete valuation by Appraisal Economics will present an accurate picture of the business or investment opportunity. Our experts will sort through the data to assess growth and profitability within a cannabis-based virtual or storefront business.
Before this federal legislation, legitimate businesses within the industry were forced to rely on cash transactions, private investors, or costly alternative financing programs. With permission from the government to utilize federal banking institutions to operate and even finance, entrepreneurs within the cannabis industry have a whole new opportunity available to them.
The debate is finally over! Under pressure from a collection of impending state laws, the National Collegiate Athletic Association (NCAA) adopted an interim name, image, and likeness (NIL) policy, effective July 1, 2021. The policy remains subject to a variety of state laws that have been implemented, and NCAA and congressional leaders have indicated a desire for a more permanent, national solution. Nevertheless, college athletes are now officially permitted to capture revenue related to their NIL.
As a result, collegiate sports were active this past spring in a unique way. In addition to normal preparation for the fall season, students, administrators, and the broader public were focused on the earnings potential of amateur athletes during their college career.
Social Media Influencers
Social media trends continue to rise, and virtually everyone has at least one preferred social platform for communication. Audiences use social media apps and online forums to peruse daily news feeds, catch up on current events, and find the best party spot for a holiday weekend. The most popular accounts have upwards of a hundred thousand followers that tune in on a regular basis. This passionate, mass audience can be persuaded to make purchasing decisions or political activations based on the influence of the celebrity behind a social media account.
Lucrative Online Activity
Collegiate students and athletes take pride in their online presence, like Florida gymnast Leah Clapper and her popular blog. Others have podcasts that cover a range of interesting and relevant topics. Thanks to the updated name, image, and likeness allowances, these hard-working student-athletes can now earn extra income through their online activity. Clapper wrote and hosted a popular food blog for several years, yet was not able to profit from her work until now.
There is no shortage of college athletes with major social media followings. Before going professional, Clemson quarterback Trevor Lawrence, for example, had hundreds of thousands of followers and was heavily active in the campus community. His influence reached a broad audience, both locally and nationally, and could have led to major endorsements during his college career. The value of such endorsements is difficult to measure, but many studies seek to estimate potential earnings.
Evaluating Earning Potential
The ability of college athletes to monetize their NIL brings challenges for athletes, administrators, and outside entities seeking to enter into a financial relationship with student-athletes. The NCAA’s interim policy maintains prohibitions on pay-for-play and impermissible inducements, though state laws can potentially override these restrictions. While navigating this evolving landscape, a primary concern for all parties involved is to accurately determine fair market value and future earning potential.
This important financial analysis could be influential in determining how much money a student-athlete earns through an NIL activity, or even ensuring compliance with NCAA and state regulations. Student-athletes’ ability to earn money could also impact decisions on when to enter the professional ranks, potentially providing incentives to remain in school longer. Few companies have the bandwidth and breadth of knowledge or experience to accurately assess the name, image, and likeness income maze. Appraisal Economics not only has an impressive valuation background, but we also have extensive experience in the sports and social media industries. Please schedule a free consultation with us today!
Growth in Offshore Wind Parks
Government incentives used to support renewable energy growth are essential for a sustainable future. Solar, wind, and hydro are among the most green energy sources. Hundreds of civilizations across centuries have proven the effectiveness of natural energy sources. Wind is a versatile renewable energy that has recently gained tremendous popularity for offshore applications.
Offshore Wind Parks
Climate change impacts virtually every community through extreme weather conditions like severe drought or flooding. Diverse groups of leaders from the political, environmental, and corporate realms have pooled resources to find viable long-term solutions. International think tanks have been researching and developing solutions for decades, and a few have resulted in commonplace changes and modified consumer behavior.
Offshore wind farm projects are cropping up in oceans and seas everywhere from Ireland to Taiwan. Multinational German-based utility companies RWE and BASF Chemicals have teamed up for a major investment to be completed within the next ten years. Potential areas for a wind farm complex in the North Sea are currently being scouted, even as the mega-deal is being composed.
Sharing Responsibility and Revenue
As the single largest energy consumer in Germany, BASF is promoting a commitment to renewable energy and responsible sourcing efforts. The chemical company has committed to owning and maintaining a 49% share of the new offshore wind park. While a large majority, nearly 80%, of the energy produced would be diverted to Ludwigshafen, the balance will be dedicated to powering a 300-megawatt electrolyzer, which will produce green hydrogen.
Replacing the energy consumption share to the surrounding communities will create stability in both the availability and pricing of electric power throughout Germany. BASF and RWE may have created what appears to be an unlikely union, but the potential for long-term benefits far outweighs the current risk. In the meantime, several major investors have expressed interest in this upcoming project.
Valuation of Growth Potential
The current union between BASF and RWE poses nearly five billion dollars under assets through completion. Although the magnitude of this project is much greater than average, the general process of evaluating the true cost and potential is similar to other renewable energy projects.
Understanding renewable energy valuations such as offshore wind parks is important. Investors and owners alike have a responsibility to fully review and evaluate their portion of a new undertaking. Investors should be well aware of the potential value throughout the lease term of a wind energy project.
Investing, buying, or selling a wind park or other renewable energy project requires a thorough review of both the upfront costs and residual value. Clean energy projects are on the rise, and so are the number of available investment strategies. Although the potential earnings are great, so is the possible risk of loss due to undervalued sales or overvalued purchases.
Appraisal Economics uses several reliable methods to value large renewable energy projects, including offshore wind parks. Our industry experts can accurately project potential earnings related to any renewable energy project. If you would like to speak to a member of our team, please contact us today.
Since taking office, President Biden has made a few stands that surprised the American public. Most recently, he announced a fairly substantial new initiative for the Internal Revenue Service. Along with directional change and increased number of staff comes a hefty boost to the IRS’ operating budget. One of the main directives is to increase audits conducted on corporations and the wealthy.
New Budget Guidelines
The $80 billion overhaul was essentially created for the sole purpose of building new ways to manage tax regulations. A popular theory is that increasing the chance of an audit will effectively curb various forms of tax fraud. Most notably, tax evasion as it relates to corporations, organizations, and wealthy individuals or families.
As one of the largest budget increases in IRS history, this effort comes with a very lofty goal. Biden and his cabinet determined that this is money well spent. This one-time budget boost is anticipated to generate up to $700 billion in revenue for the IRS over the next ten years.
Select and Random Audits to Multiply
This substantial staff growth comes on the heels of decades of decreased staffing due to consistent budget cuts. The Biden administration seeks to reverse the effects of limited staffing in many federal programs and departments. The first staffing initiative within the IRS is expected to focus heavily on taxpayer oversight with specific impact.
Inheritance tax breaks allow individuals to transfer up to $11 million ($23 million for couples) to the next generation without incurring tax liability. According to some IRS calculations, there is a severe underreporting of wealth transfer. Families who wish to circumvent the nearly 50% tax rate for inheritance planning may undervalue their assets in an attempt to avoid paying taxes. Bolstered audits will likely uncover millions in potential tax revenue for the IRS within the first year.
Supplemental staffing is not meant to raise the alarm, and there is more involved than simply a lingering audit threat. In addition to increased oversight, the funding hike will also offer benefits to most taxpayers. A higher number of staff and improved online services will make it easier and more convenient for users to connect with live agents or find answers to frequently asked questions.
Qualified Wealth Valuation
To determine the true value of transferred assets, the IRS is now calling on some of the same agencies used by corporations and wealthy families. Expert valuation services like Appraisal Economics offer a complete and unbiased look at past transactions, as well as current assets. Anyone who has a concern about the possibility of misrepresentation of their earnings or tax liability should consider an independent valuation from a qualified firm.
Since the IRS is reaching out to valuation firms to reappraise asset values computed by taxpayers, individuals and corporations should consider obtaining a qualified appraisal report. Advanced preparation brings clarity and may help avoid the unpleasantries of an unfavorable review by the IRS.
Traditionally, sports franchise opportunities extended only to professional teams. As new faces came along and draft picks became regularly televised events, the landscape began to change. Today, college athletes are gaining more recognition than ever before. National media coverage and live streaming events have skyrocketed the hometown hero into the realm of major commercial endorsements.
College Athletics and Notoriety
Student athletes have unique rules placed on them based on the college or university they attend, as well as their sports agent or representative. A current trend has emerged with great opportunities for college athletes to monetize their name, image, and likeness. This evolution comes with elaborate debate and seemingly loose rules.
Streams of Income for Collegiate Sports
Without NIL rights, college athletes are not generally entitled to revenue based on their ability, experience, or personal image. Division Councils, individual states, and key stakeholders have been in discussion to determine who can make money through name, image, and likeness, and through which avenues funds can be routed.
The Supreme Court heard oral arguments in late March and the decision set an influential precedent for future cases resembling the Alston v. NCAA antitrust case. Future laws will be heavily influenced by this landmark case as well. The gap between amateur and professional sports is slowly closing, and the real question of NIL rights often comes down to perceived potential.
Since NIL usage as a source of potential income is a new concept and, despite much discussion, no leading groups have been able to develop a sound formula or create an expected average earnings prediction. Professional football and baseball associations generally garner around $120 million annual revenue through combined licensing deals.
Sports merchandise and promotional apparel items are the largest grossing portion of annual revenue among professional players and associations. College athletes will probably not see that level of revenue anytime soon, but there are several ways in which they can monetize their name, image, and likeness.
Major manufacturers are already vying for marketing efforts utilizing the most popular college athletes. In addition to apparel and promotional items, college sports enthusiasts are willing to invest in other products and services. Video game development, live stream events, and personal appearances all have great revenue potential for young amateur players.
A bigger debate will be forthcoming as colleges and universities hash out how and when the school name, mascot, and other identifiable information can be used. Inevitable changes have savvy collectors taking advantage of early selections as prices of branded merchandise will likely increase as laws change.
What Is It All Worth?
Monetizing the name, image, and likeness of any public figure is a delicate art. Only an expert can offer accurate independent valuation figures. At Appraisal Economics, we perform a wide variety of services, which include calculating NIL for wealthy and famous individuals. With more than three decades of relevant industry experience, our expert appraisers have the keen ability to cover all bases and ensure a complete and accurate valuation report.
Life science and healthcare business movement has more than doubled compared to this same time last year. In fact, the first quarter of 2021 produced more healthcare merger and acquisition activity than any other quarter in history. While several catalysts have prompted this perfect storm in healthcare competition, the resulting changes will impact the future of global healthcare.
Volume and Trends
Positive trends are pointing toward a swift and clear economic recovery. In March 2021, analysts pointed to nearly 300 industry deals. This number, largely made up of acquisitions and mergers, represents the highest total in a single month. The unsurpassed opportunities and recognized revenue have encouraged new investors to enter the healthcare industry in search of the next lucrative deal.
Life science and pharmaceutical, physician services, and healthcare technology were the top three sectors for Q1 activity. Medical device and supply distribution and behavioral health services also appeared in the top grossing healthcare sectors in early 2021.
In a recent press release, Jazz Pharmaceuticals PLC announced their acquisition of GW Pharmaceuticals PLC, a deal valued at around $7.27 billion. These statistics are not surprising, considering the rapid changes in both healthcare and technology due to the pandemic.
Rise of Telehealth Services
The most noticeable and complex healthcare activity comes in the form of telehealth services. Due to the COVID-19 virus, physicians had to quickly pivot and embrace viable new ways to serve their patients. The resulting explosion in telehealth services created new and varied investment opportunities. Physicians were able to offer flexible hours, service features, and more payment options. Patients were ensured safe and comprehensive care with no loss of vital services or prescription coverage.
Walmart has made an unexpected play to get ahead of Amazon in the telehealth arena by acquiring MeMD. The strategic investment in omnichannel healthcare will catapult the retail giant into a new field of service. While Amazon Care will develop their niche in the telehealth industry with a focus on uninsured individuals, Walmart will likely take a different approach.
Experts predict that the superstore will leverage their brick and mortar presence to fully develop telehealth services. This simple case study stands to highlight the magnitude of increased activity in healthcare mergers and acquisitions. Telehealth services offer economical options and a mutually convenient business model for healthcare providers and patients.
The pandemic created countless shutdowns, closures, and inconveniences that lasted well over one year. However, response to the virus also sparked ingenious remedies and allowed innovative leaders to pivot into viable new business lines within broad industries. The telehealth subset is the perfect example of how investors connected within the pandemic to seek out new opportunities and solutions.
Future Investment Opportunities
Competition within the telehealth space will continue over the next several years. Fierce competitors and industry leaders vying for segment control will outperform, outpace, and outthink the marketplace standards.
For more than a year, healthcare professionals have been challenged at every step in their response to COVID-19. Each facet of the healthcare industry, from research to direct care, has been impacted by the pandemic. An obvious shift in priorities emerged, and niche primary care options cropped up almost overnight. Technological upgrades allowed providers to provide care without coming in contact with every patient.
Emerging Biotech Companies
Companies like SummerBio, Codagenix, and other newcomers offered assistance and ingenuity to healthcare patriarchs. Research giants have made use of countless startups to procure around the clock data streaming in an effort to control the spread of COVID-19. The fast-moving advancements and continual improvements led to multiple vaccines being brought to market in record time. Additional studies are still underway, and biotech companies that emerged for a single purpose are proving to have great value in other healthcare sectors as well.
The explosion of new biotech companies entering the market have given investors and existing biotech giants a reason to pause. Perhaps surprisingly, there was no report of defunct biotech firms. Most existing companies either conserved resources to continue ongoing research, or jumped headfirst into the vaccine research and development race. Longstanding flagships like Merck even showed unexpected growth since the onset of the pandemic.
As the second largest firm in the global vaccines platform, Merck offers hundreds of pharmaceuticals that are effective against many diseases and ailments for both human and animal health. Quickly cornering the market on cancer research, Merck successfully introduced Keytruda. This exponentially popular immuno-oncology drug is anticipated to be the internationally top selling cancer treatment drug within the next five years.
To prepare for future growth and stabilize existing activities, the company is strategically reorganizing internal efforts. One of the major changes is the separation of the Organon line. In short order, the Merck healthcare for women sector of activities will be independently managed as a unique entity.
Valuing Biotech Firms
Unpredictable valuations within the biotech circuit have created wariness among capital providers. Even one or two isolated incidents of unsubstantiated or incomplete valuation reports can be catastrophic for fundraising efforts. Biotech companies depend on investors in order to bring their products or ideas to market. Comprehensive and accurate valuations are imperative.
The only way to gain peace of mind about a monumental investment decision is to consult with a reputable valuation firm with strong expertise. Appraisal Economics’ experienced professionals critically review valuation reports prepared by corporate financial teams as well as independent firms. We have over three decades of healthcare valuation experience, and we go the extra mile for our clients. Contact us today if you would like to learn more.