When selling your business, receiving offers is a big hurdle to overcome so, when this happens, it might seem like plain sailing from here. Unfortunately, there is still quite a way to go with the transaction, the first being to analyse the offers on the table, to make sure they suit your exit or growth strategy.
This might not seem difficult, but there are many ways to structure a transaction. Therefore, depending on what you want to get out of the sale of your business, this will influence the type of deal you take. For example, are you planning to retire and need to live off the proceeds of the sale? Or do you want to remain involved in the business?
Consider the below list of ways to structure a deal to find out which is right for you:
Cash on Completion
Probably the most popular option for the seller, cash on completion means you receive the total value when the company is sold. The buyer then immediately owns the company, which only requires you to action a handover period agreed with the buyer prior to the sale. This is beneficial to those looking to have a clean break from business completely – for example, you want to retire – as you have the funds to live off immediately. However, when the whole consideration is paid at once, you might not receive as high a value for your business if you structure the sale differently.
A deferred payment is when a proportion of the purchase price is only due after completion. For example, if the business was sold for £10m, you could receive £5m on completion, then £1m on an annual basis for the next five years. The drawbacks of this are there is a higher risk involved with this and is no good if you require the money straight away for plans post-sale. On the other hand, you may receive a higher offer if some of the payment is deferred, especially as it provides a chance for the buyer to pay out of future profits.
A contingent payment is where a portion or all of the purchase price is dependent on certain caveats, for example, a predefined financial milestone. Again, a contingent payment is more of a risk to the seller, but they can benefit from an ambitious sales price if the company is on a growth curve – particularly useful for promising start-ups.
An elevator deal is where the owner doesn’t sell the entire business, instead the owner keeps partial ownership. This is best for those that want to de-risk and secure cash for the business but want to stay on in a day-to-day capacity.
So, if you are considering offers on the table from buyers, don’t just take into account the overall value of the business, make sure you bear in mind the different ways to structure a transaction. If this seems like a minefield to you, make sure to look into hiring a good M&A adviser – they can not only help you analyse your offers, but also negotiate the best deal to suit your needs.
WE ARE READY WHEN YOU ARE
Call Benchmark International today if you are interested in an exit or growth strategy or if you are interested in acquiring.
Europe: Carl Settle at +44 (0) 161 359 4400 / Settle@BenchmarkCorporate.com
Americas: Sam Smoot at +1 813 898 2350 / Smoot@BenchmarkCorporate.com
Africa: Anthony McCardle at +27 (0) 21 300 2055 / McCardle@BenchmarkCorporate.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximising solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $5B across 30 industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 13 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.