Every company is different and, as a result, the sale of every company is unique. Each sale requires a bespoke governing sale and purchase agreement to spell out with clarity what the responsibilities of both buyer and seller are.
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Deal Structures When Selling Your Business
There are two common approaches used to purchase a business and five common ways of paying for a business. When taking your company to market, you must decide in advance which type of sale and which methods of payment are acceptable to you and try not to deviate from them. Conflict and disagreement during both the negotiation and due diligence phases of the acquisition of a company are to be expected – after all, both sides are trying to secure the best deal for themselves and they are behaving accordingly.
But knowing in your own mind beforehand what is right for you and what isn’t right for you will give your negotiation approach urgency and credibility. And throughout the process of selling, your acquirer and their professional representatives will quickly understand what is acceptable to you and what is not.
Types Of Sale
With an asset sale, the acquirer selects the assets they wish to purpose – generally included in these types of sale are plant, property, IP, contracts, goodwill, and so on. You remain the owner of your company and your company still owns its liabilities. These deals go through a lot quicker than share sales because they are less complicated and because the acquirer is not taking on the types of risks and liabilities they would be taking on if it was a share sale.
The tax surrounding asset sales can be fraught so you would benefit from speaking with your accountant before making a decision
Paying For The Deal
As a rule, the higher the initial payment, the lower the amount of money you’ll receive for your company. Most takeovers are financed by debt and, in the months following the takeover, a new company within a group may drain cash for the new owner and distract his/her senior management away from their normal duties.
However, as mentioned earlier, there is no guarantee that, if you allow payments to be deferred, that your old company (or the new company taking it over) will survive for long enough to make those payments. You should also be wary of “completion accounts”. Your acquirer may want the price lowered if the value of your company (measured by its assets minus its liabilities) is lower than a given amount on the day of completion (the day on which the shares or assets are sold).
Completion accounts are generally finalised within 90 days of the deal being done and, if the value of the business is lower, you will usually be expected to reimburse the acquirer using an agreed method. You should ask your professional representatives (your solicitors and accountants) to argue that the lowest value possible be included in the sale and purchase agreement to protect yourself once the price has been agreed.
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five general ways for your acquirer to pay you
Acquirer Payment Types
Now that we have mentioned the 5 different ways in which you can get paid for selling your business, we will go into more depth of each type.
With a 100% cash payment on the day of completion, you have certainty about the amount of money you’re going to receive.
This type of sale will however lead to your receiving the smallest amount of money in principle out of all five types of sale. We say “in principle” because of the caveat mentioned above that the acquirer might make a mess of the takeover and you may end up receiving more in total using this payment method than by using another if they do make a mess of it.
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