Transferring a Business
The fundamental considerations in devising a negotiation strategy for the sale of a business depends on which side of the proposed transaction you are on. Are you the buyer, seller or is it a merge? I have personally been involved in the initially negotiations on the purchase of a business, in preparing a business unit for sale and also in the merging of two businesses together. I have seen successes and also failures.
The considerations for a buyer of a business in the negotiation include the following:
- What are you buying? Is it the business as an ongoing concern, contracts that the business owns and/ or the assets of the business?
- What is the business structure? Are you transferring the shares of a company across? Is it currently in a partnership? Or are you just buying part of a company (ie a business unit)?
- In the early stages it is not uncommon to sign a confidentiality agreement.
- What guarantees will the seller provide for the business? Will the seller agree to a non-compete clause? Will the seller provide a warranty over of the income of the business? How can you protect yourself from the seller starting up a new business and stealing back the customers that they have a relationship with?
- What Regulations and Legislation affect the business or the selling of the business? Are there licences and qualifications required to operate in the industry? Is there an authority that has to approve the transfer of the business?
- Will key staff required to operate the business stay on after the transfer? What are the employee provisions (liabilities) that are being transferred to the new employee (Annual leave, Sick Leave, Long Service Leave)?
- Will Contracts, both client and suppliers, be transferred over to the new owners? Will there need to be negotiation with suppliers and clients to ensure that contracts are transferred?
- What are the future liabilities for the business? Are there product warranties that the new owners will have to honour? What are the liabilities in terms of accounts payable, loans and leasing arrangements?
- Will the buyer’s financial sources (loans or shareholders) support the purchase?
- What are the tax implications, including GST and CGT, for the transfer of business?
During the Due Diligence process in the consideration of a transfer of a business there will be an outline of the key timings for each of the above processes to happen. The outline will also list the triggers for the sale negotiation process to continue, to terminate or for further negotiation before continuing.
For the seller the considerations will be similar except that the seller will need to negotiate how much information they are willing to share at each point in the process. It is a balance of ensuring that the buyer can perform their due diligence while not sharing the information unless the buyer is serious about the end outcome. For a merger it is a combination of the considerations for the buyer and seller. In a true merger each party will need to complete due diligence on the other party.