Melissa Bizyak and Brad Matthews, from GYF’s Business Valuation Services Group, presented The Impact of OBBBA on Valuation at our firm’s annual CPE Day. Discussion topics included key tax provisions impacting business valuation, income and market approach fundamentals and future impacts, and key valuation considerations going forward.
The presentation began with a review of valuation fundamentals, emphasizing that value is always forward-looking, meaning that value is predicated upon future earnings. The risk of future earnings is quantified in a discount rate, most commonly a weighted average cost of capital. Additionally, a valuation is completed on a going concern basis, meaning that the business will continue to operate without regard to potential changes in policy in future years, using what is known or knowable at the Date of Valuation. Valuators must consider and reflect new expectations of the current business environment, including new tax provisions.
Impact of the One Big Beautiful Bill Act (OBBBA) Tax Provisions
The OBBBA, enacted on July 4, 2025, includes numerous tax provisions, some of which are immediately applicable, while others will occur over the next 10 years. Although this list is not all inclusive, Melissa and Brad covered the following key OBBBA tax provisions of that impact business valuation.
Corporate Tax Rate
Under the OBBBA, the corporate tax rate has been made permanent at 21%. In a business valuation, valuators must consider the current tax rate environment at the Date of Valuation. From a valuation perspective, the tax rate has an inverse relationship on value, meaning that if the tax rate decreases, value will go up, while holding all other factors constant. Making the corporate tax rate permanent at 21% will increase after-tax cash flows, resulting in higher valuation multiples.
Bonus Depreciation
With the enactment of the OBBBA, 100% bonus depreciation was made permanent, allowing companies to immediately write-off all capital expenditures in the year in which they are placed in service. Prior to the OBBBA, bonus depreciation was set to sunset, and the amount available for write-off would step down. This change will materially accelerate tax deductions in early years, increasing the tax shield available to businesses. From a valuation perspective, the increased tax shield available to companies as they are able to write-off all capital expenditures lowers taxable income. As a result, income tax payable by the company decreases, raising after-tax earnings. Additionally, by increasing cash flows in earlier years, the present value factor used to bring the cash flows back to the Date of Valuation will have a larger impact due to the timing difference of when the tax shield is realized by the Company.
Section 179
The Section 179 deduction increased from $1.0 million to $2.5 million, with broader applicability than previously allowed under the OBBBA. Similar to bonus depreciation, this change increases the tax shield associated with capital expenditures as companies are able to write-off a larger amount. This increased write-off subsequently lowers the amount of pre-tax income subject to income taxes. Additionally, this provision will impact real estate and improvements going forward as companies will automatically get a greater deduction for such investment.
Section 174 Research & Experimentation (R&E) Expenditures
Previously, domestic R&E expenditures were required to be capitalized and expensed over five years, which created a disconnect between the timing of the expense and the deductibility against taxable income. The OBBBA repealed this provision and now allows R&E expenditures to be deducted immediately. From a valuation perspective, this change creates a short-term tax shield and an accelerated return on investment to a hypothetical buyer. Increasing the tax shield subsequently increases after tax earnings, thus increasing value.
Net Operating Losses (NOLs)
Under the OBBBA, the carryforward treatment of NOLs has been made permanent. Carrying forward losses will create a delayed tax benefit for companies in the future. Additionally, in an acquisition, the acquirer will be able to utilize any prior NOLs going forward, with critical examination expected during stock transactions.
Considerations Related to the Approaches Used to Determine Value
Income Approach
The income approach is based upon future economic benefits, typically forecasts, to calculate free after-tax cash flows. With the enactment of the OBBBA, management teams will need to revisit their forecasts and reasoned assumptions to ensure they are taking advantage of tax provisions and timing that will be most advantageous to the business.
Valuators will also need to look closer at their weighted average cost of capital (WACC) inputs with the changes under the OBBBA. Industry capital structure will likely change due to OBBBA implications. With the cost of debt going down due to the decrease in the tax rate, coupled with reassessing the company specific risk premium in the cost of equity, the WACC will likely change. As the WACC goes down, value increases.
Market Approach
There are two main methodologies under the market approach: the guideline publicly traded company method and the guideline merged and acquired company method. Under the guideline publicly traded company method, valuators identify comparable companies and use their respective trading multiples to value a subject company. Public company trading prices take into account relevant market factors and the current tax environment, such as the OBBBA. On the other hand, private company transaction multiples, are determined as of a point in time, and are, therefore, not inclusive of any current market conditions. As such, private company multiples will require adjustments to reflect impacts of the OBBBA and other considerations relevant to the subject company being valued.
Other Potential Impacts of the OBBBA
To conclude, Melissa and Brad discussed how the OBBBA will affect estate and gift planning, M&A transactions, and potential litigation. From an estate and gift perspective, we expect to see increased scrutiny from the IRS and value assumptions should be reassessed. In the M&A environment, emphasis will be placed on deal structure, specifically asset versus stock deals, and how to best take advantage of the current tax environment. And, finally, if there are disputes over valuation or unclear buy/sell agreements, litigation may arise. For any ongoing or pending matters, valuation assumptions will need reassessed and expert testimony will need to address these changes.
Overall, as the OBBBA provisions take effect, valuation professionals should revisit key inputs and levers built into valuation models and gain an understanding of how these provisions impact your business.
Click here to access copies of the slides, links to resources and a video of the presentation
About GYF’s CPE Day: The firm presents this program each year to bring together clients, friends of the firm, and other professionals who are interested in gaining knowledge. The day is always filled with interesting presentations and great networking opportunities, and is generally attended by 300+ guests. If you have any questions about the material covered, or other issues we did not have time to address, please reach out to your GYF Executive or contact the office at 412-338-9300. We look forward to seeing everyone next year!
