Craig Simpson, Tax Partner at Bates Weston looks at the options for selling your company.
When is the right time to sell your business and what are the options available to you?
The timing of selling a business will differ widely depending on sector, profitability, market perception and individual shareholder objectives. In our experience every client differs but the common theme is that the eventual exit of the shareholders should be planned in advance to achieve the best outcome.
What are the routes to sale?
Trade sale
A trade sale is typically a sale of 100% of the shares in the trading company to a buyer in the same sector or where the buyer is looking to access the market. In a trade sale the shareholders realise their investment in the company through a mix of cash, deferred consideration and/or earn-out. They stay with the business for a short period after sale but often retire shortly after a suitable handover period. Every deal is different and sometimes the sale proceeds can include shares in the acquiring company to try and capture the future upside of the buyer growing the business further.
Management Buyout
The journey to a management buyout sees the company ensure that a strong second tier management team are identified and a plan implemented for the existing shareholders to sell the company to the management. The proceeds are often met by surplus cash in the trading company or debt, and any deferred consideration is often paid from the future profits of the business. Such transactions are often structured using a new company formed by management that acquires the trading company for an agreed amount. The exiting shareholders may stay with the business for a period to ensure customer and supplier relationships and profits are protected.
Family Buyout
Similar to a management buyout but where family succession is the central objective. The next generation buyout the retiring generation by forming a new company to acquire the share capital of the trading business. The proceeds are often funded out of cash reserves and future profits. This can be a tax and commercially efficient way of passing the business to the next generation.
Employee Ownership Trust
A relatively new concept the shareholders can sell to an employee ownership trust (EOT). The EOT is an all employee trust which agrees to buy the shares from the existing owners of the company in return for cash on completion and often deferred consideration.
This route is particularly attractive for companies which don’t have an obvious trade or management buyout route available and allows for the vendor shareholders to realise their investment as well as see the company transitioned to employee ownership which is aimed at ensuring the company continues to trade after the shareholders have retired.
The big advantage of the EOT is that the proceeds should be tax free to the shareholders and can be funded from cash in the trading company and from future profits. Properly planned and implemented this can see a successful outcome for shareholders and employees.
How can we help?
An early discussion on your plans for the future is essential to determine which route is best for you. We are happy to meet with you to share our experience and discuss the options for selling your company. Contact Craig Simpson or Richard Coombes.