The Covid-19 pandemic has had an undisputed impact on businesses. For some business owners, having got through onto the other side, the toll of Covid may have prompted them to rethink their business plans, perhaps bringing forward the desire to sell the business or their shares in it. Other businesses may have experienced an unexpected boost due to the pandemic, making it an attractive proposition for purchasers.
There are many reasons why business owners may choose to sell a business or their shares. These include ill health, retirement, the desire to extract cash, or simply because they want to move on to something else.
Depending on the type of company or business and on what it is you are looking to achieve, there are numerous options available. Here we look at different exit strategies and how to choose the right one.
Third party sale
This is where a business or its assets are purchased outright by another party. This may be a competitor, another business in the supply chain, or someone looking to enter into a market by buying an established business.
Regardless of how ‘simple’ the sale may appear to be from the outset, there will still need to be a number of key legal factors considered and procedures to be followed in order to ensure there is no ongoing liability from the exiting business owner. Legal advice should be sought in relation to negotiating and drafting heads of terms, carrying out due diligence, negotiating and drafting the key transaction documents.
Otherwise known as an MBO, this is where the managers within the business can buy the company, or shares in the company. This is a popular option in successful businesses where owners are looking to retire or reduce their involvement.
MBO’s have increased in popularity in recent years, with business owners seeing them as a means of ensuring ongoing continuity. One disadvantage is that the process can sometimes take longer than a straightforward sale.
This where a company purchases the shares back from the leaving shareholder. There are a number of rules that a share buy back must fulfil, for example, the share buy back must be for the benefit of the company and there must be here must be sufficient funding for the purchase the company. As a transaction between the company and the exiting shareholder, the deal must be approved by other shareholders. Depending on the circumstances, company buyback mean more favourable tax treatment on the proceeds from the sale.
Wind it up
Where other avenues have been explored to no avail, it may be necessary for the company to be wound up. This essentially means closing a company down, which involves making sure all of its affairs are dealt with legally so there is no ongoing liability. The company will also need to be removed from the companies register held by Companies House.
Unfortunately, the decision to sell a business is not always one of choice, but can become one of necessity. In any event, planning well in advance can increase the likelihood of being able to sell on your own terms. Having professional advisers that understand your business, along with your personal and commercial needs on hand to guide you through the sale process can increase the likelihood that the sale is successful and achieves your objectives.
For further advice in relation to exit options, contact James O’Donnell.