Key points covered in this article:

  • Industry leaders are cautiously eyeing a rebound in M&A in both volume and deal size, with the One Big Beautiful Bill Act prompting more creative deal structuring under its business-friendly tax reforms.
  • Bonus depreciation is back to 100%, and Section 179 expensing limits are increased, creating up front tax deductions and cash flow for buyers of asset heavy businesses.
  • The EBITDA calculation for determining adjusted taxable income (ATI) is restored, expanding the 30% cap and giving buyers more room to leverage debt with stronger cash flow advantages.

After several years of sustained economic volatility, the M&A market could be poised for a comeback with the One Big Beautiful Bill Act (OBBBA) creating new opportunities for both buyers and sellers.

Since 2021, companies have been operating amid heightened uncertainty, navigating between shifting tax laws, rising interest rates, and an ever-changing patchwork of tariffs. For much of this year, the undercurrent of uncertainty has muted demand for domestic deals, with Q1 volumes down 26% year-over-year due to “valuation mismatches between buyers and sellers,” and Q2 showing near-identical performance to Q1 but still 27% lower than the same quarter in 2024.

A cautious enthusiasm about business-friendly tax reform and steadying interest rates, paired with pressure to infuse of dry powder from private equity, is creating a more favorable backdrop for M&A activity. After years of stop-and-start momentum, the conditions for dealmaking are finally starting to look up. Goldman predicts that if the activity seen over the summer continues, 2026 will represent a rebound year. The market still has a way to go to, but the OBBBA provides a contributing tailwind for dealmaking in the near term, one where companies can better structure, price, and diligence deals with firmer footing.

Following is a breakdown on how the OBBBA policy changes impact M&A transactions.

Bonus Depreciation and Section 179

Signed into law on July 4, 2025, the OBBBA permanently extends 100% bonus depreciation on qualified assets placed in service after Jan. 19, 2025 and ends the scheduled sunset provisions. It also increases the Section 179 expensing limits to $2.5 million, up from $1.25 million, and raises the threshold to $4 million from $1.25 million.

What this means for M&A: Upfront tax deductions could potentially create a significant cash flow advantage for buyers of asset heavy businesses by lowering their immediate tax liability. However, accelerated expensing is a tool not a default. In cases where the immediate deduction would create a net operating loss, it may make more sense to opt out of bonus depreciation and spread deductions over the hold period or at exit for a future buyer.

Sellers need to consider how to structure the deal with these tax incentives in mind. Pass-through sellers may be able to negotiate higher valuations, knowing buyers will realize immediate savings.

Business Interest Expense Limitation: Section 163(j)

The rules around deducting business interest expense may be the launch point for renewed M&A activity. Effective for tax years beginning after Dec. 31, 2024, the OBBBA restored the EBITDA calculation for determining a taxpayer’s adjusted taxable income (ATI), adding back depreciation and amortization. Moving ATI from EBIT back to EBITDA raises the base used for the 30% interest-deduction cap, creating greater tax savings, cash flow, and financing flexibility for buyers.

What this means for M&A: Financing activity has been a sticking point in recent years, but with the return of the EBITDA calculation, there’s a higher appetite to fund leveraged deals, especially where step-up creates sizeable D&A. Buyers also have more room to take advantage of the one-time bonus depreciation and section 179 write offs in the year they acquire those assets and leverage the higher cap when calculating those deductions.

Research and Development

Another notable change is businesses can now once again fully deduct domestic R&D costs in the year occurred. Beginning in tax years after Dec. 31, 2024, businesses no longer have to amortize over five years and have the option to take previously capitalized deductions on their 2025 returns with an amended return option for smaller businesses for 2022-2024 costs.

What this means for M&A: With the flurry of technological advancements, along with innovation in energy, manufacturing, and healthcare sectors, this reinstated provision can improve cash flow for R&D heavy businesses. It also makes them more appealing acquisition targets because of improved after-tax earnings projections. One thing to keep in mind: Stacking immediate R&D credits with other front-loaded deductions can push taxable income too low. This, in turn, could lead to adverse tax consequences.

State and Local Tax (SALT)

Starting in 2025, the OBBBA allows individuals to now deduct up to $40,000 in state and local taxes, an increase from the previous $10,000 limit. The deduction will increase by 1% annually through 2029 and start to phase down for taxpayers with modified adjusted income over $500,000. While this generous increase will benefit more taxpayers, owners of S corps and partnerships can still elect to use the Passthrough Entity Tax (PTET) workaround that isn’t subject to the individual limits.
What this means for M&A: The PTET workaround remains unchanged in the OBBBA and continues to provide a full federal deduction at the entity level for sellers of passthrough entities to help offset state taxes and create an additional federal tax deduction.

Qualified Business Income (QBI) Deduction

In another big win for businesses, the 20% QBI deduction has been made permanent for passthrough entities.

What this means for M&A: The QBI deduction can help reduce the tax burden for sellers of asset heavy businesses where depreciation recapture can create significant tax liabilities. Its permanence provides long-term planning opportunities for owners looking to plan an exit.

Qualified Small Business Stock (QSBS)

For investors in qualified small businesses that are structured as domestic C corps, the OBBBA made some key revisions to the rules governing Qualified Small Business Stock (QSBS) that could offer greater tax savings and new planning opportunities when structuring deals.

Here’s what has changed for QSBS issued after July 4, 2025:

  • New tiered exclusion system: Investors can exclude 50% after three years, 75% after four years, and 100% after five years.
  • Higher gain exclusion cap: The maximum amount of gain eligible for exclusion has been raised to $15 million, up from $10 million.
  • Expanded gross assets threshold: Companies can now qualify with up to $75 million in gross assets, up from $50 million, which broadens the pool of eligible owners.

What this means for M&A: Investors who are holding original-issued C corp stock have an opportunity to creatively structure deals around this provision to enhance tax savings.

Under previous law, investors were required to hold the QSBS for a minimum of five years to qualify for a full exclusion. The OBBBA’s tiered exclusion system, however, now allows investors to plan an exit sooner and receive partial tax benefits. Any taxable portion can still be rolled over into another qualified small business within 60 days under Section 1045 to avoid paying tax right away.

What Buyers and Sellers Should Do Next

Companies that adapt M&A strategies to the OBBBA and integrate tax considerations early will have a greater competitive advantage in the bid process going forward. Bonus depreciation, EBITDA-based interest deduction rules, and expanded QSBS tax exemptions are already changing valuation benchmarks and financing strategies, giving companies that were on the sidelines a compelling reason to reenter the market.

This changing landscape will require buyers to improve their tactics. Higher scrutiny of balance sheets, longer diligence periods and rising compliance costs, along with potential limits on deal types will raise the bar for buyers and call for more thorough preparation, risk management, and strategic flexibility.

Sellers may be challenged in other ways. They might start to see a longer sales process in response to debt financing and more demand for transparency from a new pool of buyers. Knowing this, getting financial records and quality of earnings in order early can accelerate the deal and attract the right buyers.

Both buyers and sellers will want to engage with experienced advisors and leverage the changes in the OBBBA to structure future deals. For more information on what the tax reform means for you or to discuss a future merger or acquisition, contact Dwight Buracker, CPA, CVA, Partner, or Taylor Hutton, Senior Manager with PBMares.