Planning Your Perfect Deal Structure
05/03/2015
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Although you want to get the best price, the final transaction won’t be all about the headline figure.
It’ll be the combination of value and terms that are just right for you.
How do you know what that deal structure combination is?
We'll help you figure it out in this guide.
What’s for sale?
Are you selling your business or its assets?
It’s an important distinction when creating your perfect deal structure.
If your buyer acquires the business in its entirety, they take everything- the assets as well as the liabilities.
They’ll want to mitigate risk as far as possible by undertaking their own due diligence process.
From a tax liability point of view, many sellers will pay less tax on profits from the sale of the business as a whole, rather than from an asset sale.
It’s important to get specialist advice at an early stage to make sure your best interests are served in your deal.
Staffing matters
There may be implications for employees regardless of the deal structure.
Under UK law (TUPE), any obligations the current business owner has towards their employees may automatically transfer to the new owner.
That said, if staff are integral to the operation of your business, chances are the buyer will want to maintain the status quo.
It's important to consult with staff as you go through your business sale and get them on side.
Bowing out
Any deal structure will include details of the proposed handover period.
It’ll specify whether you sever ties immediately or stay on for a transition period.
Any transitional period can be negotiated upon agreement of an offer.
It’s your call.
You might be wondering about your financial options.
Read on to learn about payment options, earn-out agreements, and alternative sources of funding.
Cash rich
How a business is paid for is up for discussion.
Often a seller will stipulate cash on completion but other approaches can be taken, including a settlement of shares in the new company, for instance.
In the case of a plc, share options may be a sound investment but taking shares in a small business can be risky, so make sure you explore the potential pitfalls if a share offer is on the table.
Backing a winner
Some buyers stipulate an ‘earn-out’ clause, especially if the value of the company has been calculated partly on future profit levels.
Under an earn-out agreement, the seller will be paid an agreed value based on profit performance.
But what’s to stop the buyer adversely affecting profits through mismanagement or high levels of re-investment?
To prevent this, an earn-out could be set at a premium over and above the agreed level or could be based on a factor other than profit – customer retention, for instance.
Alternative funding
Deferred payments offer the buyer the option of raising finance over a longer period of time, offering them the opportunity to spread the cost – essentially paying by instalments.
In a similar approach, sellers may also choose to finance the deal themselves, offering the buyer the option of paying the agreed price split into a with-interest payment schedule.
Both methods may enable the seller to get a better price or to secure a sale that would otherwise be difficult to find.
Related Guides:
Complete Overview of Selling a Business
There you have it- all of the components you need to create your perfect deal structure.
If you're looking to sell, you can view our selling a business page or read more of our guides and insights in our Knowledge Hub.
If you need more legal information on business transfers, takeovers, and TUPE advice, head to the GOV.UK's dedicated web page.
You can also benefit from signing up to our mailing list below, where you'll receive plenty of guides and tips to help you on your business sale journey.
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