by Dan O’Connor, Excendio Advisors
Introduction
Capital expenditures (capex) — from IT hardware and data centers to software platforms and equipment — are more than operational necessities. For founders and owners preparing for exit, the way capex is structured under the tax code directly influences EBITDA optics, cash flow, and negotiating leverage.
Historically, depreciation rules often created friction in M&A. Straight-line or accelerated depreciation spread deductions over years, weakening near-term profitability and forcing sellers to explain margin compression to skeptical buyers.
Now, with the One Big Beautiful Bill Act (OBBBA), §179 expensing takes on new significance. Sellers can strategically elect to expense qualifying capex in the year of purchase, improving reported EBITDA and strengthening the exit narrative.
For IT Owner-Founders, the difference between proactive planning and reactive reporting can mean millions in enterprise value.
Why Capex Timing Matters Now
Capex has always been part of the M&A story, but under OBBBA and today’s buyer scrutiny, it has become a seller-side valuation lever. Several reasons stand out:
Valuation Driver
EBITDA is the foundation of most M&A valuations. How capex is depreciated directly shapes EBITDA optics. Sellers who maximize §179 elections can improve margins by several hundred basis points, translating into higher multiples.
Cash Flow Shield
Immediate expensing reduces near-term tax liability, creating liquidity that can be reinvested into growth. Buyers reward businesses that demonstrate both profitability and reinvestment capacity.
Governance & Readiness Signal
Disciplined capex planning signals operational maturity. Sellers who document §179 elections proactively show foresight, reducing diligence friction and buyer discounts.
Negotiation Advantage
Rather than explaining away thin margins, sellers can highlight strategic reinvestment and capital efficiency. Framing capex timing as part of a valuation story turns a potential weakness into a premium signal.
📌 Bottom Line: Capex under §179 is no longer just about accounting. It is a strategic filter buyers use to distinguish disciplined, exit-ready companies from reactive operators.
Quick Comparison — Depreciation vs. §179 Expensing
| Item | Traditional Depreciation | §179 Expensing (Post-OBBBA) |
| Deduction Timing | Spread over 3–7 years | Immediate in year of purchase |
| EBITDA Optics | Lower in near term | Stronger in near term |
| Cash Flow Impact | Gradual | Immediate liquidity boost |
| Governance Signal | Neutral | Proactive, disciplined |
| Valuation Implication | Margin compression → lower multiple | Margin strength → higher multiple |
Key Requirements
Not every purchase automatically qualifies for §179 treatment. Founders must align purchases with IRS requirements and exit objectives.
- Eligible Property
- Tangible personal property (e.g., IT hardware, servers, equipment, off-the-shelf software).
- Strategic Implication: Investments in scalable infrastructure can both support growth and strengthen valuation optics when expensed immediately.
- Dollar Limits
- OBBBA increased §179 limits and phase-out thresholds. This means larger IT investments can qualify.
- Strategic Implication: Mid-sized IT firms can plan larger-scale upgrades without losing eligibility.
- Placed in Service
- Assets must be used in the business in the year the deduction is claimed.
- Strategic Implication: Timing purchases relative to an anticipated exit allows sellers to maximize EBITDA optics exactly when buyers are watching.
- Interaction with Bonus Depreciation
- §179 and bonus depreciation provisions can overlap but must be coordinated.
- Strategic Implication: Sellers should scenario-test which path maximizes both tax efficiency and valuation optics.
📌 In short: These rules are not technical hurdles — they are strategic levers that directly influence exit readiness, valuation multiples, and after-tax proceeds.
Why This Matters for Founders & Owners
Capex treatment under OBBBA and §179 is more than tax strategy. It’s a valuation narrative.
Enhanced After-Tax Proceeds
Tactical: Immediate deductions reduce taxable income in the year of purchase.
Strategic: Liquidity gained can be reinvested into innovation or growth, supporting higher valuations.
Valuation & Negotiating Leverage
Tactical: Buyers see stronger EBITDA in diligence.
Strategic: Sellers command higher multiples and reduce valuation discounts tied to margin compression.
Exit Readiness
Tactical: Clean documentation of §179 elections simplifies diligence.
Strategic: Sellers appear “deal-ready” years earlier, accelerating timelines and improving outcomes.
Capital Allocation Advantage
Tactical: Retroactive elections (where available) may unlock prior-year refunds.
Strategic: Using these proceeds visibly in growth strengthens both trajectory and buyer confidence.
📌 In short: Capex strategy is not a back-office detail — it is a seller-side weapon for maximizing outcomes.
Case Example
Consider a mid-sized IT services company preparing for a sale in 2026. The business generates $15M in normalized EBITDA before considering depreciation elections. That year, it invests $2M in IT infrastructure.
Straight-Line Depreciation (Legacy Treatment)
- Only ~$400K is deducted in year one, with the remaining $1.6M spread over future years.
- Reported EBITDA appears $13.4M instead of the normalized $15M.
- At a 9× EBITDA multiple, buyers value the business at ~$121M.
- Implication: Founders must explain thinner margins in diligence, creating room for buyers to push for discounts.
- 179 Expensing (OBBBA-Enhanced)
- The full $2M deduction is taken in year one.
- Reported EBITDA reflects the full $15M, with stronger margin optics.
- At a 10× EBITDA multiple, buyers value the business at ~$150M.
- Implication: Sellers demonstrate foresight and governance maturity, supporting stronger multiples and reducing buyer skepticism.
Broader Implications
Founders:
- A single §179 election creates a $29M swing in enterprise value — from $121M to $150M — without changing fundamentals.
- Demonstrating proactive planning strengthens deal readiness.
Investors & Boards:
- Better optics attract competitive bidding and improve IRR at exit.
- Discipline in capex and tax elections is now a governance expectation.
Employees:
- Higher exit valuations improve shareholder outcomes for equity-holding employees.
- A company positioned as profitable and scalable signals long-term stability and opportunity.
📌 Insight: The treatment of a single $2M capex decision can swing enterprise value by nearly $30M. For sellers, this is not just tax planning — it’s valuation strategy.
Call to Action
Capex isn’t just a cost of doing business — it’s a strategic signal. For buyers, how you plan depreciation and §179 elections reveals foresight, governance maturity, and reinvestment capacity.
👉 Connect with Excendio for a scenario test on capex planning. We’ll help you model how §179 timing impacts EBITDA, cash flow, and exit valuation — and ensure you enter negotiations with leverage, not explanations.
Excendio helps IT founders and owners turn capex strategy into a valuation advantage, not just a compliance exercise.