There are a number of stages for all sides including the following. Preparing objectives, reasons, information, advisors and the business itself. Identify candidates. Auction, woo and negotiate. The seller will check the buyer has finance in place. Execute the deal. Post deal integration.

There are many ways to cut the deal. Do you want a share sale?  An asset purchase?  A management buyout by existing management? A management buy-in by a new hungry but experienced team? Or a just an exclusive license or supply contract. Much will depend on tax, who is the stronger party and the overall circumstances – see below.

The seller will have a reasonable answer to this question. Opportunity to make a capital gain? Realize opportunities? Forced to sell – bankruptcy, death or sickness? Retiring? Increased regulation? Increased competition or failing business? If the latter – is there a turnaround opportunity or an asset opportunity for the buyer?

The buyer typically wants access to a new product or new technology. But not always. Other reasons for buying include access to new customers or sector, economies of scale, market dominance, turnaround opportunity, asset opportunity. But the buyer must do due diligence and be careful not to over-spend. It is also vital for the buyer to plan “the morning after”.

Methods of sale include a trade sale, financial sale, auction, IPO, exclusive license or supply, buy-out, buy-in.

A business is worth what another party will pay for it, no more, no less. Possible
bases for negotiation include:

• Multiple of past or future expected profits
• Asset based valuation
• Many others e.g. market share, key technology, brand value.

• Is intellectual property (IP) protected?
• Is the business in good shape?
• Can profitability be reasonably enhanced?
• How is the cash flow?
• Are personnel performing well?
• Are management performing well?
• What will the main negotiation issues be – price and what else
• Are founders prepared to stay on to help ensure a smooth handover?
• What should
• the post acquisition business model be?

As Paul Simon sang, “Get a New Plan, Stan!” (50 Ways to Leave Your Lover).

Both sides need a business plan. Set goals. Have a strategy and time-table for achieving the goals. Share relevant parts with employees.

For this, management needs to demonstrate leadership. Leadership means a longer term vision and entrepreneurial skills to make it all happen roughly to plan.

Check the seller’s intellectual property is patented or otherwise protected. Assess the market and strategy for reaching the market. Identify unique selling points, points of competitive advantage, e.g. niche product, trend or clientele.

The seller should list competitors and how they compare.  The seller should have vision, past financial statements ready and a budget going 3 – 5 years into the future, reflecting its milestones.

Predicting the future is difficult, but necessary to help identify relevant factors. What matters in particular are the assumptions made – they need to be listed and make sense.

Sellers usually prefer a share sale. That way shareholders may pay limited capital gains tax but this needs checking in each country concerned.

Employees on a stock option plan also want to minimize their income tax/capital gains tax/social security liability. And they are afraid they may be let go.

But the buyers typically prefer to buy the main assets – which can increase the overall tax liability considerable for the sellers..

Sometimes buyers, especially those listed on a stock exchange, pay with their own stock (shares), not cash. There may even be a lock-up period or instalments. If so, the sellers can the sellers defer their tax hit until cash arrives? Often they can’t. Detailed rules exist and advance planning is absolutely essential for both sides.

Moreover, the buyer must sometimes withhold tax – from the sale consideration unless the sellers produce official clearance for any lesser rate of tax.

The transaction agreement will need to reflect all these tax aspects among many others.

The above is general and brief. As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.