Exit strategy : The Trade Sale

Let’s focus on a trade sale as a strategy for you as an business owner to get the financial results you deserve after spending many years of hard work.

The benefit of a trade sale
A trade sale opens the sale process to a wider range of potential buyers; this route has several significant advantages:

  • It can ensure that you have firm control over who takes over the running of your business.
  • It provides a strategy to exit where there is no internal succession route
  • By selling to a same sector trade buyer, a better strategic fit is more likely – and could enable a deal to be completed quicker
  • It opens up a greater choice of purchaser and potential sale return

If you proceed down this route the owner manager needs to market the company, and consider its current issues and procedures.  For example employee disputes, internal systems, current financial position – there is a long list to ensure the business is attractive and ready for the sale.  Also the current owner manager (or managers) should think about a reasonable value within a range that he, she or they would accept.

As with any of the sales strategy any potential buyer will need to do their own due diligence and therefore certain key company information will need to be made available including the latest management accounts and forecasts.

There are two common methods for a trade sale that you would need to consider, i.e. a ‘share sale’ or a ‘sale of trade and assets’, each has benefits and concerns to both buyer and seller.

For a share sale, the buyer will take over the company as a whole including all of its assets, liabilities and its history.  From the seller’s point of view, in the UK it is usually more tax efficient for the sale to take place by way of a sale of shares, as the gain realised on the sale will be subject to capital gains tax and this is the personal liability of the shareholders. Subject to various conditions, the seller may offset this with different tax reliefs, including entrepreneur’s relief.

For a sale of trade and assets, which is the preferable option for the purchaser, for the company to sells its assets and liabilities for an agreed valuation.  This needs specialist advice for the seller not least on how to value the company.  Also this can lead to a much higher tax bill for the existing shareholders and there may be a necessity to extract ‘funds’ from within the existing business prior to the final sale and if this is done incorrectly can lead to UK capital gains tax.  Often the professional fees incurred to wind down the business are also incurred by the seller.

Managed correctly, a trade sale can provide a financially effective route for exiting a business, but there are many considerations that need to be taken into account, including:

  • Building an attractive business case for potential buyers
  • Ensuring that the sale is structured in the most effective way for all parties
  • Consider how much tax will be incurred by selling the company or its trade

Over the past 20 years we have advised many owner managers on how best to exit from their businesses.  Phil McConnell himself has been involved in the sale of several companies in which he was a significant shareholder. If you wish to discuss with Phil how he can advise you as an owner manager get the results you deserve, contact Phil here

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