The days when you might hope to advertise your business for sale or call up a competitor and find a buyer who would purchase it outright, leaving you to go and buy a villa in Spain, are long gone. Whilst outright purchases can still occur in some sectors, these sorts of deals are now extremely rare due to traditional funding being more expensive and less easy to obtain and most businesses having less available cash to fund a purchase. On the whole, business owners are having to think much more flexibly in terms of how they go about achieving the sale of the company – often having to plan the process earlier and be more realistic in their expectations.
Longer payment terms. For the seller, this will of course mean they will not realise the whole value of the sale for a number of years. Depending on the value of the business, payments can be structured over fewer than 5, up to 10 or even as long as 20 years in some deals. One advantage for the seller, however, is that they often retain a minority shareholding in the company, meaning if the business is doing well when the end of the staged buyout is reached, they will receive an additional lump sum payment.
MBO’s. Management buyouts are being seen more and more frequently as the availability of outright purchasers has reduced. MBO’s occur when existing employees, usually a second tier management team, are approached to take over the company. The advantage to the seller is that the new owners are already known to them, so there is a mutual trust and common understanding of how the business should be run going forward. Increasingly, MBO’s are being structured over longer periods of time, allowing the purchase to be funded largely by the cash flow of the company itself. In addition, the incoming owners often have restrictions imposed upon them in terms of the decisions that can be made regarding business expenditure and staff overheads, affording the outgoing seller some security until the sale proceeds have been paid in full.
Passing on to family. The structured sale of a business to the children or next generation in a family business can be another way to plan an exit. These deals can be structured in a similar way to MBO’s – so the seller retains an interest for a number of years to oversee the running of the business, whilst receiving an annual payment from the sale. A word of warning – family members are not always the best people to take on the running of a business – despite the sentimentality of wanting to pass everything on to your nearest and dearest, it is vital that they have the skills, passion and desire to take the responsibility on.
The landscape for buying and selling businesses has certainly changed over the past 5 years or so with the overall trend being for deals structured over a number of years; meaning it takes longer for business owners to access the entire value of the business. Once a business owner has accepted this, there are definitely ways in which longer-term deals can be structured to the seller’s advantage – it’s often just a case of being flexible!
For legal advice on selling a business, or indeed if you are planning to buy a business, please don’t hesitate to contact us for free initial legal advice.
By Debbie King, Corporate Solicitor
Contact Us TodayWe're here to help.
Call us on 0845 050 1958