Getting Your Business Ready for Sale: Is Your Structure Helping or Hindering You?
When business owners start thinking about a sale, attention naturally turns to finding a buyer, agreeing a valuation and negotiating the deal. But there is another question worth asking well before the business goes to market: Is the business you want to sell actually sitting in the right structure?
Over the years, businesses evolve. New activities are added. Property is acquired. Companies are bought. Intellectual property is developed. Cash accumulates. Different parts of the group start sharing employees, contracts and services.
That may work perfectly well while you own everything.
It can become more complicated when you only want to sell part of it.
What exactly are you selling?
Imagine you have one company which operates two successful businesses. A buyer approaches you about Business A. You want to sell it, but keep Business B.
The problem is that both businesses sit inside the same company. They may share employees, contracts, premises, intellectual property and other assets. Legally, there isn't a neat dividing line between them simply because you think of them as separate businesses.
Before a sale, you may therefore need to reorganise the group so that the business being sold sits in its own company.
This is often referred to as a pre-sale reorganisation.
The starting point is simple.
What does the buyer need to acquire - and what do you want to keep?
Do you want to keep the property?
Property is a good example of why this matters.Suppose the trading company owns the premises from which the business operates. You want to sell the business, but you don't want to sell the property.
If the buyer is acquiring the shares in that company, the property goes with it. You may therefore need to consider whether the property should be moved elsewhere within the group before the sale, with appropriate arrangements put in place for the buyer to continue using it.
That needs to be considered early. Moving property between companies can have legal, tax, valuation and financing consequences, so it isn't something to leave until a buyer is ready to complete.
The same question can arise with other valuable assets.
What needs to go with the business and what do you intend to retain?
Are different businesses mixed together?
Sometimes the problem is not property but the businesses themselves. Perhaps one company has developed several divisions over the years.
If you want to sell only one, you need to identify what actually makes up that business.
That might include:
Customer and supplier contracts;
Employees;
Equipment and stock;
Intellectual property;
Licences;
Property;
Debtors and creditors; and
Other rights and liabilities.
A pre-sale reorganisation can be used to move the relevant business into a standalone company before that company is sold.
That can create a much clearer proposition for a buyer - and a clearer separation between what you are selling and what you are keeping.
What about shared services?
Businesses within a group often share more than their owners realise. One company may provide accounting or HR services to the others. Employees may work across several businesses. The whole group might use the same IT systems, insurance policies or banking arrangements.
That is fine while everything remains under common ownership. But what happens when one business leaves the group?
The buyer needs to know that the business can continue to operate after completion. If it still relies on services from the seller's group, you may need transitional arrangements while the buyer puts its own systems in place.
Thinking about these practical issues early can avoid discovering halfway through a sale that the business is not as standalone as everyone assumed.
Is your group more complicated than it needs to be?
Preparing for sale can also be a good opportunity to simplify. Over the years, a group may accumulate dormant companies, old subsidiaries, intercompany balances or structures that no longer serve a clear purpose.
A buyer will want to understand the group. If you struggle to explain why a particular company exists or how money and assets move between different entities, the buyer is likely to ask the same questions.
That does not mean every group needs to be stripped back before a sale.
But it is worth asking:
Does the current structure make the transaction easier to understand – or harder?
Are the important assets actually where you think they are?
This is another issue that can emerge during due diligence.
The business may use a brand, software, website or other intellectual property every day.
Which company actually owns the intellectual property?
Are important customer contracts with the company being sold, or another group company?
Who employs the key staff?
Does the company own the assets it needs to operate?
These questions can seem obvious until someone starts checking the paperwork. A buyer wants confidence that the company it is buying actually owns, or has appropriate rights to use, what it needs to run the business.
Finding and fixing those issues before due diligence starts can make the sale process considerably smoother.
Don't forget the connections between group companies
Companies within the same group often have financial connections too. There may be intercompany loans, guarantees, security arrangements or balances that have built up over time.
Those arrangements need to be understood before one company leaves the group.
For example, has the company being sold guaranteed borrowing elsewhere in the group? Has another group company guaranteed its debts? Is money owed between the companies?
These issues may need to be resolved as part of the sale or an earlier reorganisation.
When should you start thinking about your business structure?
Ideally, before you have a buyer waiting. A pre-sale reorganisation may involve moving shares, businesses or assets, obtaining third-party consents and dealing with tax consequences. Some steps may take time.
The earlier you identify what needs to change, the more opportunity you have to deal with it properly rather than trying to restructure the business in the middle of a transaction.
You do not need to know that a sale is definitely happening.
If selling the business is a realistic possibility in the next few years, it can be worthwhile asking whether the current structure gives you the flexibility you would want.
Is your business sale-ready?
Before a sale, it is worth asking:
What exactly would I want to sell?
What would I want to keep?
Are those businesses and assets already separated?
Does the company being sold own what it needs?
Are there shared employees, contracts or services?
Are there intercompany loans, guarantees or other arrangements to deal with?
Is the group structure more complicated than it needs to be?
The aim is not to restructure simply because you might sell one day.
It is to make sure that when the opportunity comes, your structure helps the deal rather than becoming another problem to solve.
How Daly McCormick can help
At Daly McCormick, we advise business owners on preparing their corporate structures for sale, including pre-sale reorganisations, separating businesses and assets, simplifying group structures and dealing with the legal issues that need to be addressed before a transaction.
Working alongside your accountants and tax advisers, we can help you identify:
What you want to sell
What you want to retain
Whether your current structure is ready for the deal you want to do.
Your business. Our legal expertise.
Dungannon, Belfast, Omagh
02887441840
Disclaimer: The information provided here does not, and is not intended to, constitute legal advice. Instead, the information and content available are for general informational purposes only.
