Exiting your company can be an exciting time, however, you will need to first find a suitable buyer. This process can be time-consuming and challenging, especially if your company is not public yet. A share sale differs from an asset sale and means that your buyer will become the owner of the shares in your company, including all assets and liabilities of the company. This article will outline some strategies to locate the perfect buyer if you sell your business through a share sale.
Share Sale vs Asset Sale
Before locating your buyer for a share sale, it is essential to understand the differences between a share sale and an asset sale. A share sale involves someone purchasing your shares and, therefore, your entire business. Your buyer will take on all assets and liabilities of your company. While this is more straightforward from a process and documentation perspective, it will often result in your buyer conducting more extensive due diligence.
Alternatively, during an asset sale, your buyer will select which specific assets and liabilities they consider necessary to run the business and that they wish to take on. This process usually requires less due diligence, given clarity over what is being purchased. However, the execution of the sale can be more involved and complex.
Employees
Your employees may likely be your business’s greatest asset. Often, they know the operations, products and pricing of the business. Knowing their career goals and plans, you could scout a current employee as a potential buyer. Moreover, an employee shareholder or director can help you execute your exit plans. To help your employee take over your company, offer them equity across different stages. They can gradually take over the company while learning the ropes and adjusting to more significant roles.
Often this method works well if you are in a niche industry where it can be hard to find a buyer. However, you must ensure your chosen employee:
- knows your business well;
- is a dedicated member of your team;
- is trusted to run the company; and
- is interested in taking over the business.
Suppliers or Customers
Additionally, consider whether an existing supplier or customer may be a suitable purchaser. Some owners consider these options if:
- their supplier’s operations will complement the existing business’s operations; or
- a key customer heavily relies on the product and services of the business.
For example, you may run an insulation business, where a construction company may benefit strongly from purchasing your business. However, you must ensure your supplier or customer has the skills to manage a company. If not, consider training them before or after the settlement date.
Competitors
Often some competitors may be keen to purchase your business due to similar operations or offerings. They may benefit from your intellectual property, customer database or processes and use these to improve their existing business. Otherwise, they may consider a share sale to remove you as a competitor from the market for long-term growth.
For example, you may own a consultancy business close to a competitor. They may be willing to buy your company to gain hold of your strategies and customers.
However, if approaching a competitor, you must ensure not to provide information that can be used against you if the sale falls through. Moreover, if the competitor asks to conduct due diligence on your business, you should ensure they sign a non-disclosure agreement. This will prevent them from leaking your company information or using it to their own benefit.
You can engage a third-party intermediary to share business information and sale terms with the competitors. This adds a layer of confidentiality which is vital if you are sure they are interested in buying shares.
Business Brokers
Business brokers are experienced individuals who can help you find a buyer for your shares. They understand the sale process well and have access to various networks to attract several buyers. Often they help with the following:
- marketing;
- scrutinising business affairs for valuation;
- advertising your business in their networks;
- qualifying and screening offers;
- managing due diligence; and
- assisting you in completing the sale.
Due to their prior experience, they can often identify serious buyers from those who may be wasting your time. Moreover, they can ensure potential buyers meet your criteria and help you negotiate prices.
However, you should note that brokers charge a fee for their services. The fee amount will depend on the nature of their services and agency agreements. Most brokers will charge a commission which is often a percentage of your company’s sale price. They may charge additional fees for advertising and marketing aid.
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Friends and Family
Another option for potential buyers is your friends and/or family, who can sometimes be overlooked. This option will depend on whether you have any family or friends with the relevant experience and skills to take over the business. In this scenario, you may wish to offer some vendor assistance for a period post-completion to help transition them into the role.
You can also exit via a pre-determined succession plan. In this scenario, your exit from the business will enable someone to take over your shares in the business.
Pre-determined succession plans may include:
- take over by an employee;
- your children, grandchildren or other relative inheriting the company; or
- any other successor of your choice taking your place.
Key Takeaways
Locating a buyer for your business can be difficult. However, some options exist, such as your key employees, suppliers, customers, competitors, friends or family. Alternatively, you can engage in the services of a business broker who can locate buyers on your behalf.
If you need help finding a suitable buyer, you can contact our experienced business lawyers to assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 005 570 or visit our membership page.
Frequently Asked Questions
A business broker can help you locate and screen buyers. Moreover, they can help you negotiate, settle the deal and market your business.
Yes, although before sharing information with them, you should ensure they sign a non-disclosure agreement.
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