Devesa discusses at the Alicante Chamber of Commerce how to successfully plan a business sale
On 2 June, Devesa, in collaboration with the Alicante Chamber of Commerce, organised a seminar entitled “The Sale of Our Company: How to Successfully Plan a Corporate Transaction”, held at the Chamber’s headquarters. The session was led by Juan Antonio Botella, Partner in the firm’s Corporate and Commercial Department, and José María García Guirao, Managing Partner of Devesa’s Tax Department. During the seminar, they examined the main legal and tax considerations involved in planning the sale of a company, covering matters ranging from corporate and financial preparation to EBITDA optimisation and tax structuring.
The session brought together business owners, executives and professionals interested in gaining insight into the key legal and tax considerations that should be taken into account before undertaking the sale of a company, the admission of investors or an M&A transaction.
During the seminar, a number of key issues relating to the successful preparation of a company sale were addressed, including the current M&A market landscape, the different types of purchasers, the various transaction structures available, the company’s pre-sale preparation, the stages of the sale process, the most common contractual provisions, and the principal tax considerations that may affect the economic outcome of the transaction.
The sale of a company requires prior legal and tax planning
One of the key messages of the seminar was that the sale of a company should not be approached without proper preparation. Planning for an M&A transaction should not begin when an offer is received, but rather when there is a reasonable prospect of a divestment in the medium to long term.
Among the circumstances that may lead a company to consider a transaction of this nature are the absence of a succession plan, the retirement of shareholders, shareholder disputes, business maturity, a market opportunity, or the possibility of accelerating growth through the admission of new investors.
In this regard, it was highlighted that many companies begin the planning process too late: a prospective purchaser is already at the table, the corporate structure was not designed with a corporate transaction in mind, assets are intermingled, risks have not been properly ring-fenced, or tax inefficiencies remain unresolved, leaving considerably less room for manoeuvre.
By contrast, early preparation enables a company sale to be undertaken with a more organised corporate structure, a cleaner due diligence process, greater negotiating leverage, and a more efficient legal and tax structure.
The current M&A landscape: family-owned businesses, succession and new types of purchasers
The seminar also examined the current M&A landscape. According to the materials presented, more than 600,000 family-owned businesses will need to address succession processes over the next decade, while family-owned businesses account for approximately 85% of Spain’s business fabric.
This scenario is driving an increase in full and partial company sale transactions, particularly within the profitable SME, lower mid-market and low-market segments.
In addition to traditional purchasers, such as industrial competitors, multinational companies and private equity funds, the seminar also examined other participants that are becoming increasingly active in this type of transaction, including Search Funds, Family Offices, foreign investors, Buy & Build platforms, public and semi-public funds, and even the company’s own management team through Management Buy-Out (MBO) transactions.
Identificar qué tipo de comprador puede valorar más una empresa resulta clave para maximizar tanto el precio como las condiciones de la operación.
What purchasers look for in a company
The session also covered the principal factors that purchasers typically assess before engaging in a company acquisition or investment transaction.
Among the factors most highly valued are recurring EBITDA, business scalability, the existence of a professional management team, limited dependence on the founder, growth potential, digitalisation, and a clear market position within the sector.
The same company may be attractive to very different types of purchaser. An industrial competitor may be seeking to acquire market share, customers or complementary capabilities; a private equity fund may focus on growth potential and value creation opportunities; a Search Fund may be attracted by the opportunity to lead and develop a business over the long term; and a Buy & Build platform may view the company as a strategic asset for the consolidation of a particular sector.
Types of transactions in the sale of a company
The seminar provided an overview of the principal structures that may be used in a corporate transaction.
These include equity investment transactions involving the entry of a new shareholder into the company’s share capital (cash-in), whereby an investor injects capital directly into the company to support its growth; majority stake sales, which enable shareholders to partially realise their investment through the transfer of control; minority stake sales, under which shareholders obtain liquidity while retaining control and continuing their involvement in the business; and the sale of 100% of the company, which entails the complete transfer of ownership and control of the business.
Each of these alternatives has different implications in terms of corporate governance, the continued involvement of the founding shareholders, investor rights, valuation, tax treatment and post-completion liability.
Vendor due diligence as a transaction readiness tool
Another key topic discussed was the importance of conducting a Vendor Due Diligence review before formally launching the sale process.
This preliminary review enables the company to be assessed from a purchaser’s perspective, identifying any legal, employment, tax, financial and structural contingencies that could affect the valuation of the business or the execution of the transaction.
A properly conducted Vendor Due Diligence review can help reduce contingencies, limit the seller’s liability, maximise valuation, improve the quality of the transaction process and minimise friction during negotiations.
Typical stages of an M&A transaction
The seminar covered the principal stages of an M&A transaction, from the initial preparation phase through to post-completion integration.
The process typically begins with the appointment of financial, legal and other advisers, the development of the transaction strategy, the preparation of the teaser, the drafting of the business plan, and the identification of potential purchasers or investors.
This is typically followed by contact with interested parties, the execution of non-disclosure agreements (NDAs), the receipt of non-binding offers, the due diligence process, contractual negotiations, completion of the transaction and, where applicable, post-closing integration.
During the contractual phase, the principal transaction documents are typically the Share Purchase Agreement (SPA), governing the sale and purchase of shares or equity interests, and the Shareholders’ Agreement (SHA), particularly where the transaction does not involve the sale of 100% of the company.
Key contractual provisions in the sale of a company
The seminar also examined some of the most common contractual provisions found in company sale and purchase transactions.
These include price adjustment mechanisms, earn-out provisions, representations and warranties, limitations of liability, claims periods, contingency management provisions, conditions precedent, drag-along and tag-along rights, good leaver/bad leaver provisions, anti-dilution protection and post-closing obligations.
Particular importance is attached to non-compete, non-solicitation of employees and customers, and confidentiality provisions, which are commonly included to protect the purchaser’s investment following completion of the transaction.
The corporate and tax structure can significantly affect the outcome of the transaction
From a tax perspective, the seminar highlighted the importance of having an efficient corporate structure in place before embarking on a future company sale.
The way in which ownership of a company is structured can have a decisive impact on the tax treatment of its sale. The presentation examined the difference between a direct sale by an individual shareholder, which may be subject to personal income tax at an effective rate of around 30%, and a sale carried out through a properly structured holding company, which may allow for an effective corporation tax rate of approximately 1.25% through the application of the 95% participation exemption.
However, it was also emphasised that the establishment of a holding company cannot be undertaken solely for the purpose of preparing for a future sale. For the structure to be tax-efficient and capable of withstanding scrutiny from the tax authorities, it must be supported by valid commercial and economic reasons, such as the efficient reinvestment of dividends, the segregation of business risks, the organisation of real estate assets, or the improvement of the group’s overall corporate structure.
EBITDA and valuation: a key issue in the sale of a company
Another of the tax and financial sections of the seminar focused on the importance of EBITDA in the valuation of a company sale and its associated assets.
In many mergers and acquisitions transactions, the purchase price is determined by applying a multiple to EBITDA. For this reason, it is essential to review in advance the accounting, financial and operational criteria that may affect its calculation.
During the seminar, issues such as the correct valuation of inventories, the distinction between expenses and fixed assets, provisions and impairments, the accrual of income and expenses, financial costs incorrectly classified as operating expenses, the treatment of leases, grants and public subsidies, as well as EBITDA normalisation, were addressed.
The objective is not to present an artificially inflated EBITDA, but rather a technically sound, defensible and credible EBITDA from the perspective of a future purchaser.
Preparing the company today to achieve a better sale tomorrow
The seminar concluded with a central message: the best transactions are those in which the company is prepared before the purchaser appears.
Proper legal, tax, corporate, accounting and financial planning can have a direct impact on valuation, execution speed, negotiating leverage and the reduction of contingencies.
In summary, the session organised by the Alicante Chamber of Commerce with the participation of Devesa provided a practical overview of how to successfully approach the sale of a company or a corporate transaction, focusing on anticipation, the professionalisation of the process and the proper legal and tax structuring.
