Wynn Williams' Corporate Team has recently assisted with the sale of a group of companies in the care industry. The process was a reminder that the opportunity to sell your business can arise at any time - so always be prepared for an unexpected, willing buyer to approach you with an interest to buy! This article broadly sets out the steps we think should be front of mind for all business owners.
Consider the appropriateness of your corporate structure
One thing people often neglect to appreciate, especially those who have built their business from the ground up, is that a corporate structure which made sense and was appropriate in the beginning, may not be appropriate now; especially when it comes time to sell. Consider tidying up your corporate structure now so that when the opportunity for sale does arises your business is ready to go. For example, if you have a number of separate companies within your group, it may be appropriate to bring them into a group structure, simplifying a sale.
Obtaining legal and tax advice before making changes to your corporate structure will help ensure you are taking all necessary considerations into account and are aware of the flow on effect of your structure (i.e. a change of control in your company may inadvertently cause you to lose your tax losses or breach agreements/leases to which your company is a party).
At this stage you may also wish to start considering whether, come time to sell, you will be wanting to sell by way of an asset sale or a share sale. There are benefits and disadvantages for each option, both from a legal and a tax/accounting perspective. Advice up front will assist you in making the right choice for your business and for you.
Be prepared for purchaser due diligence
Due diligence (also coined 'DD') is an essential part of any sale (and purchase). Whether or not you have plans to sell, you should always be prepared for a DD process. Depending on the purchaser, DD can vary from "exceptions only" - which looks only at key aspects of the business/company - to the other end of the spectrum with a full DD process which delves into every aspect of the business and reviews almost everything.
DD can be a stressful and time-consuming process, particularly when it involves a competitive bid and more than one purchaser is interested. However, by getting your business affairs in order you will in effect be preparing yourself for a DD process. Our recommendation is to investigate key aspects of your business in order to identify gaps, then you can move on to "dotting the I's and crossing the T's". Key aspects include:
- Corporate structure and governing documents
- Key contracts/material agreements
- Employees and contractors
- Property and leased premises
- Assets, and plant and equipment
- IP and ICT ownership
Dotting the I's and crossing the T's
Undertaking your own informal 'seller DD process' will allow you to identify gaps and make any necessary updates so you are DD ready come sale time. Gaps may include (among others):
- Contracts/agreements that have not been signed or returned from various counterparties or third parties/entities
- Informal arrangements that ought to be formalised (e.g. handshake agreements or operating on the terms of an expired or out of date agreement)
- Intellectual property (trademarks and domain names being the most common) or other licenses or permits in your personal, rather than business name
- Intercompany lending/shareholder loans which have not been formally documented
During this process, try to ensure that all documentation is complete, accurate and up to date. Other helpful tips include:
- Categorise and file documents according to category
- Rename documents/agreement titles so that they make sense to others (not just you as a business owner)
- Ensure all scans and copies are legible and complete
Engage a strong team with the right expertise
Selling a business can be a complex process and potentially daunting if you have never done it before. It is important to engage a strong team with the right expertise to make the process as seamless as possible. For example, if you are selling a retirement village or care business, engage lawyers and accountants and other professionals who have experience in these industries. As a broader comment, engaging a team that has experience in buying and selling businesses, generally, will put you in great hands from the outset.
If you haven't been approached by a potential buyer, but are looking to sell, there are a number of business brokers who specialise in finding buyers. Again, there are specialists depending on the industry, size, location or sector in which you operate. If you are interested in discussing the potential sale of your business with a broker, we would be happy to make an introduction to brokers who we regularly work with.
First steps in the sale process
Before you take any steps in the sale process (i.e. before giving out any information) you should consider confidentiality and exclusivity:
- Confidentiality: we always recommend that parties enter into a Non-Disclosure Agreement (also referred to as an NDA or a Confidentiality Agreement) before any information is exchanged between the parties. If the transaction doesn't proceed, the worst-case scenario is that you have spent a little time and money on protecting your business' confidential information
- Exclusivity: you need to consider if you want to be bound to negotiating and discussing the proposed sale with only one purchaser, potentially passing up the opportunity to receive a higher, more favourable offer from a different purchaser. Alternatively, a request for exclusivity may be an indicator of an interested and motivated buyer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.