Potential Tax Changes Driving a Mini Boom: Golub Capital President

The potential impact of a dividend tax hike—up to 20 percent or higher—is driving a sudden boom in business activity, Lawrence Golub, president of Golub Capital told CNBC's "The Strategy Session" on Tuesday.

"We have a pipeline of 96 separate middle-market transactions that are trying to close by years end—record levels," Golub said."These are companies with an enterprise value of about $400 million dollars or less."

President Obama is pushing to end the Bush tax cuts for the wealthiest Americans, which are set to expire December 31. The tax cuts were enacted in 2001 and 2003 under President Bush and lowered rates across the board on income, dividends and capital gains.

There are three potential tax moves "driving a boomlet [a small period of rapid growth in the market] through the LBO (leveraged buyout) business," Golub said, referring to potential increases in the tax rates on dividends, capital gains, and carried interest (a form of income earned by hedge fund managers).

Golub believes another aspect to the dividend tax equation involves BDCs(business development companies)—typically owned for income—which need yield. The past cycle taught a number of people a very important lesson: if you are not invested properly, the dividend may not matter much, because you could lose a lot of money in the principal.

"Things are different now," according to Golub, because you are "investing after the credit crunch, after the recession and that is historically a wonderful time to be a credit investor, to be a lender. You are lending against recession impacted EBITDA and margins have increased," he said.

This is especially true for the BDC investor, because they are "investing in the middle market and getting a premium return to say the high-yield market because junk bonds have gotten so expensive," Golub said, adding, "you are getting better structures in the borrowers, more down-side protection and there should be lower default rates."

"The second big difference, if you pick the right manager, is the alignment of interests. Some of the fee structures incent [create an incentive] the managers just to grow, grow, grow, issuers' shares—no matter," he said.