Many transactions were put on hold following the crash of 2008, largely on the basis that finance had been difficult to obtain and investor confidence was low.
But, we can’t stop the clock indefinitely – business owners get older, their expectations change and time marches on.
We have noticed an increased level of corporate activity this year, notwithstanding the challenging marketplace. In order to help owners wishing to sell and those wishing to buy, we have set out a few pointers which we hope will be helpful.
First of all, obvious as it sounds, know the business. A lot of time can be wasted because the seller does not have a grasp on each aspect of their business. This can disrupt the flow of the transaction and spook the buyer into wondering how well the business has been run. For a buyer, knowing the sector means knowing what to look out for in a potential acquisition and what to say in price negotiations. It also gives a grasp on what is important to keep that business profitable.
For a seller, making the business presentable is key, as this will affect the asking price. The buyer will want to see the insides of the business as part of the due diligence process. Having all your paperwork in order is important as it helps stop the deal from stalling before it has barely begun.
Decide whether the transaction should be a share sale or an asset sale. In a share sale, the buyer acquires the shares of the company, and therefore takes on all the assets and liabilities. In an asset sale, the buyer acquires the business from within the seller company and can cherry pick what it wants, but will need to have the contracts in the business assigned or novated to it, and will need to become involved in what is known as a TUPE consultation with employees. Due to recent changes to tax legislation, transferring the business to a new company and selling that company may, depending on the facts, be a good compromise between these alternatives.
Take tax advice. It pays to think ahead because some forms of tax structuring need to be put into place at least 12 months before a sale. Think about whether you want to incentivise key employees by enabling them to take a stake of the business – again, the earlier you do this the better.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.