The changes in corporate and individual tax rates brought about by the Tax Cuts and Jobs Act of 2017 (the “Act”) impact all methods of business valuation. This paper focuses on the Merger and Acquisition method, where valuation multiples are calculated from transactions of companies similar to the subject company.
In calculating these multiples, consideration must be given to the concept that a pre-Act M&A transaction would not reflect changes in the cost of capital and corporate tax rates attributable to the Act. Consequently, an adjustment is appropriate when a pre-Act M&A multiple is used to value a subject company as of a post-Act valuation date. This adjustment is referred to as the Enterprise Value Adjustment Multiple (EVAM).
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