For businesses looking to expand rapidly, acquiring another company can aid growth massively vs. relying on organic development alone.

In fact, in sectors such as accountancy, we’ve found from experience that practices can expand up to 8 times faster through acquisition.

One of the most important stages of buying or selling a business is agreeing on the structure of the deal.

This essential step is a binding agreement between parties that ensures that the deal proceeds based on the expectations of the buyer and the seller.

Our latest blog post looks at the importance of deal structuring, the most common types of deal structure and how you can ensure that the deal structure benefits you.

Why Deal Structuring Matters

With so many moving parts when buying or selling a business, it is critical that a deal structure is agreed on so that both parties understand their rights and obligations.

Structuring deals properly means that both parties understand the outcome of the merger or acquisition, reducing the chances of the negotiations falling through.

Types of Deal Structure

Broadly speaking, there are three traditional methods of structuring a deal when a business is bought. These are:

Asset Sale – In an asset sale, the buyer acquires some or all of the assets they want such as existing clients, IP and property. The assets are defined in the sale and purchase agreement.

This type of deal structure allows the buyer to decide which assets they wish to buy, meaning that the transaction can end up being very specific to the needs of both parties. An asset sale generally offers less risk to the buyer of taking on unknown liabilities. 

However, due to the nature of an asset sale, the buyer may not be able to acquire assets that are non-transferrable such as licences and goodwill.

Share Sale – In a share sale, the entire business including all of its assets and liabilities including property, contracts and licenses are transferred to the buyer.

Share sales are simpler for the seller as the business is sold in full as a going concern. For the buyer, a share sale can be beneficial when assets such as contracts are non-transferable.

This type of deal requires more due diligence on the part of the buyer as there may be financial or legal obligations they are unaware of initially which will become theirs when the deal is finalised.

Merger – A merger is an agreement between two businesses to become one new entity, either under a new name or a name of one of the existing businesses.

Mergers can be less complicated than acquisitions as all the assets and liabilities are passed over to the new majority owner with minimal negotiations taking place.

However, like share sales, due diligence must be performed by the seller to ensure that no unknown liabilities arise once the deal has been completed. 

Which Deal Structure Is Best?

Because every business is unique, the type of structure that is best suited to the transaction will depend on the expectations of both the buyer and the seller.

Finding a structure that works for both parties is often a balancing act that requires some level of compromise on both sides.

In most cases, a combination of the most popular methods of deal structuring may be used to create a more flexible structure.

Top Tips When Structuring a Deal

Properly negotiating and structuring a deal increases the chances of getting the best outcome. Here are our top tips when negotiating a business deal:

  • Have your business independently valued before negotiations commence to ensure the buyers offer you a fair price.
  • Do research into the potential buyer or seller of the business, have they undergone any acquisitions in the past? Were they successful?
  • Be firm with your expectations but have some room for negotiation to increase the chances of the deal going ahead.
  • If you are the buyer, make sure your business has the funds available to buy the business.
  • If you are the seller, take steps to maximise the value of your business before the sale.
  • If you are the seller, consider whether you would be happy to continue being involved in the business for a time after the sale. As the buyer, consider if having the seller on board would be beneficial.
  • Anticipate problems – buying or selling a business is rarely a simple affair and negotiations can overrun or go in a completely different direction to what was expected.
  • It is highly recommended that you engage a professional business broker and legal expert when selling or buying businesses.

Use a Professional Business Broker

From identifying businesses for sale that meet your requirements to structuring the deal and following the proper legal process to make the sale official, a business broker can help you at every stage of the process of buying or selling a business.

Whether you are selling your business or acquiring another company, our personal approach to buying and selling businesses has a high success rate and keeps initial objectives at the forefront of negotiations throughout.

Talk to the Experts

If you are looking to buy or sell a business, having the right people on your side can make all the difference and ensure you get the outcome you want.

Our expert team has experience helping people like you get the results they want when buying or selling businesses; take a look at some of our recent case studies to see how we’ve already helped businesses like yours.

To have a conversation about how we can help you, give one of our team a call today on 0117 379 0117 or fill out a contact form and we will get back to you.