About Deal Structure

Selling Your Business -Deal Structure And Taxes

What you need to know about taxes and deal structures in the sale of a business.

The purpose of this article is to demonstrate the importance of the tax impact in the sale of your business. As an M&A intermediary and member of the IBBA, International Business Brokers Association, we recognize our responsibility to recommend that our clients use attorneys and tax accountants for independent advice on transactions.

As a general rule, buyers of businesses have already completed several transactions. They have a process and are surrounded by a team of experienced mergers and acquisitions professionals. Sellers on the other hand, sell a business only one time. Their "team” consists of their outside counsel who does general business law and their accountant who does their books and tax filings. It is important to note that the seller’s team may have little or no experience in a business sale transaction.

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Deal Structure For Selling A Business - Generational Equity

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Many of the business owners we meet at our tell us that they will only sell their companies if the deal is comprised of 100% cash at close. Although we understand this desire, as we cannot guarantee that this will be the case. Therefore, we advise business owners that flexibility in regards to deal structure is the key to selling to the optimal buyer.

In fact, the more flexible you are regarding how you allow your M&A advisor to structure your sale, the better the deal could ultimately be for you. Of course most business owners dream of all-cash deals, but sometimes all cash deals are not as lucrative as structured deals.

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Advice About Selling Your Business And Exit Planning

Imagine you get a call from one of your competitors or their representative.  As you speak with them, they are sizing you up and finding out how well your business is running and how motivated you are to continue running your business.  They want to set up a meeting with you to discuss the possibility of a merger or acquisition.  What do you do?

First of all, set the meeting far enough in advance to do some research, but not too far out to lose momentum on a potential deal.  Give yourself enough time to gather enough information to be confident about valuations in your industry and businesses in a similar size range as your business.  Also, give yourself enough time to think about how motivated you and your family are to exit, but don’t discuss this with anyone else at your company.  When dealing with an experienced buyer that has bought many companies, it is important that you understand your company’s value.  The buyer will gauge your actions and words carefully, and it is important to stay alert but not scare off the buyer by being too defensive.  Since they are already interested in your company, you should be confident about your position but listen very carefully to what they are suggesting.

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Selling A Company: Negotiating Price And Deal Structure

This post suggests an approach to negotiating the terms of an offer to buy a company.

Negotiating the terms of a company sale is in many ways the same as negotiating the terms of any other commercial contract – with one important difference – it is one of the few times in business that there is no second chance.   This "one and done” aspect of a company sale transaction makes getting it right first time essential, and puts a premium on good preparation.  So what do we see as the essential elements of a successful negotiating approach?

Have you got previous experience of selling or buying a company?  If not it is easy to make an expensive mistake through inexperience.  Like every area of commercial activity selling a company has its own recurring issues and special jargon.  Some of the issues are unusually complex.  Do you understand the different issues raised by an asset or a share sale?  How is the value of working capital secured in share sale?  How does the overdraft impact the value of my company?  What is the best way to structure deferred payments or earn-out arrangements?  How much free time is it reasonable for buyers to expect after the sale?  All issues that can be difficult to think through if you have not come across them before, with the potential for making an expensive mistake.   For most business owners it is essential they involve an accountant, solicitor or business broker with extensive experience of this type of negotiation.  Think of any fees incurred as an insurance policy against a costly mistake.

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