Key takeaways
- Preparing to sell starts several years before the first contact with buyers, because the financial statements, contracts and management team cannot be fixed within a few months.
- The announced price is not the money the owner receives. In the example, an enterprise value of THB 600m leaves closing cash of THB 403.5m before the seller's tax.
- The aim is to reduce the grounds on which a buyer can cut the price, hold back money or walk away, not to dress up the numbers.
An owner plans to step back in five years and thinks there is nothing to do yet. When the time comes, the buyer asks for past financial statements and finds that the family car is held in the company, key land is in the owner's personal name, the largest customer has no contract, and the owner still signs everything personally. None of these makes the business worse today, but each gives the buyer a reason to push the price down. Selling a business is like selling a house: you have to repair and tidy it before inviting people to view it, and some jobs take longer than expected.
What the buyer is buying
A buyer pays today for future cash flow. Anything that makes that cash flow uncertain turns into a discount, a holdback or a warranty in the contract. Preparation therefore has three goals.
- Make the results provable from documents
- Make the business able to keep running without depending on the owner
- Resolve legal and tax issues before the buyer finds them
Preparation plan by timeline
The timeframe depends on the condition of the business. A company with good systems may need 12–18 months, while one that must restructure or build a new team may need 24–36 months.
- 36–24 months before the sale Separate company money from family money, organise the group structure and asset ownership, and raise the quality of the financial statements and the audit.
- 24–12 months before the sale Build a management team that can act in place of the owner, reduce reliance on major customers, put key contracts in writing, and close out known disputes and tax risks.
- 12–6 months before the sale Carry out vendor due diligence, make a preliminary valuation, select advisers and prepare the data room.
- 6–0 months before the sale Prepare the information memorandum, shortlist buyers, and negotiate the term sheet and the sale and purchase agreement (SPA).
From headline price to cash actually received
Hypothetical example The buyer offers an enterprise value of THB 600m on a cash-free, debt-free basis. Figures in THB million.
| Agreed Enterprise Value | 600.0 |
| Less net debt | (120.0) |
| Less: working capital below the peg | (15.0) |
| Share price under the contract | 465.0 |
| Less escrow of 10% of the share price, held for 18 months | (46.5) |
| Less advisers' fees and expenses of 2.5% of EV | (15.0) |
| Closing cash before the seller's tax | 403.5 |
Closing cash equals 67.25% of Enterprise Value and does not yet include the seller's tax. The working capital and escrow items arise from uncertainty that early preparation can reduce, but nothing guarantees the outcome of the negotiation.
Issues buyers commonly find
| Issue | Effect on the deal | What can be fixed beforehand |
|---|---|---|
| Related-party transactions without contracts | EBITDA is adjusted and warranties are added | Put contracts in place and set market prices |
| Personal expenses in the company | The figures are not credible and there is tax risk | Stop the items and separate the accounts |
| Customers or contracts cannot be transferred | Risk of losing revenue when the shareholders change | Review change of control clauses and negotiate in advance |
| Key assets held outside the company | The scope of the sale is unclear | Restructure, calculating the tax before any transfer |
| Audited financial statements contain remarks or many adjustments | The buyer must carry out additional checks | Revise accounting policies and the closing process |
| All the relationships rest with the owner | A long earn-out or a requirement to stay on | Spread relationships and delegate authority |
Share sale or asset sale
Sellers usually want to sell shares, while buyers may want to buy assets to avoid past liabilities. The tax consequences differ greatly. Assets that are real estate attract Specific Business Tax (SBT), transfer fees and income tax on the gain. A corporate seller's gain on the sale of shares is included in income for corporate income tax (CIT) at 20%, and individuals who sell unlisted shares are subject to personal income tax. Structuring must be done before signing and must have a business rationale. Have a tax adviser calculate the actual case, because rules and tax treaties may change.
Sell when ready, not when forced
Sellers who are squeezed by debt, health or family conflict usually have little time to negotiate. Early preparation therefore gives the choice of whether or not to sell. And if preparation gives the business systems and verifiable profit, the owner benefits even if they finally decide to keep the business or pass it on to heirs.
Next steps
- Set the period in which you want to exit, and the reason for selling
- Assess whether the business could run if the owner stopped work for 3 months
- Prepare a list of all related-party transactions
- Check asset ownership and contracts with change of control clauses
- Prepare normalised EBITDA for the past 3 years
- Model the net proceeds of the sale after debt, escrow, expenses and tax
- Start collecting data room documents now