Selling your business through a share sale can be a complex and challenging process, particularly when it comes to finding the right buyer. A share sale involves transferring ownership of the company shares to a new owner, which means the buyer will take on all the assets and liabilities associated with the business. This differs from an asset sale, where only specific assets are transferred to the new owner.
Finding the ideal buyer for your share sale requires careful consideration of various factors, such as the buyer’s financial capability, industry experience, and plans for the future of the business. It’s important to identify a buyer who aligns with your goals and can continue the legacy you’ve built. In this article, we’ll explore the key steps and strategies for finding the right buyer for your business through a share sale.
What is a Share Sale?
A share sale occurs when a current shareholder sells their company shares to a buyer. Through this transaction, the buyer becomes a new shareholder and owner in the company, with their ownership percentage directly tied to the number of shares purchased.
When a buyer acquires 100% of a company’s shares, they become the sole owner. If they purchase a smaller percentage, like 10%, they join other shareholders as partial owners. This type of sale is only possible for businesses operating under a company structure, not sole proprietorships or partnerships.
In a share sale, the buyer takes over the existing business structure, including all assets and liabilities within the company. This means the buyer inherits any potential issues or “skeletons” in the company’s history. The comprehensive nature of this transfer makes finding the right buyer crucial.
The sale process requires careful documentation through a share sale contract, which outlines:
- The names of the seller(s) and buyer
- Number of shares being sold
- Price of the shares
- Terms and conditions of the sale
- Warranties and guarantees
Before proceeding with a share sale, buyers should conduct thorough due diligence to understand the company’s past activities, profits, and losses. This research helps minimise risks associated with taking on existing company liabilities.
For sellers, protecting sensitive business information during the sale process is paramount. Having potential buyers sign a confidentiality agreement before sharing detailed company information helps safeguard against misuse of business data, particularly when dealing with competitors.
Need Answers Fast?
Contact us today.
Identifying the Right Buyer for Your Business
Finding the right buyer for your business requires careful consideration of different buyer types and their alignment with your goals. A suitable buyer will understand your business’s value and have the capability to maintain its success after the sale.
Strategic Buyers
Strategic buyers typically operate in the same industry or related fields and seek to expand their market presence through acquisition. These buyers often have existing business operations and look to integrate your company into their structure.
Strategic buyers may be willing to pay more for your business because they can identify specific synergies and growth opportunities. They understand your industry’s dynamics and can leverage existing resources to enhance the business’s value.
Financial Buyers
Financial buyers focus primarily on investment returns and view your business as a financial asset. These buyers, often private equity firms, analyze your company’s financial performance and growth potential.
Financial buyers may require you to stay involved in the business post-sale to ensure continuity and maintain performance. They typically look for:
- Strong cash flow potential
- Clear growth opportunities
- Solid management teams
- Scalable business models
- Proven track record of profitability
Unlike strategic buyers, financial buyers might prioritise short-term financial gains over long-term legacy considerations. They often plan to improve the business operations and sell it for a profit within a specific timeframe.
Qualifying Potential Buyers
Finding potential buyers for your business requires careful evaluation to ensure they are capable of completing the purchase and are a good fit for your company. A thorough qualification process helps identify serious buyers and avoids wasting time with those who lack the means or genuine interest to proceed.
Start by requiring potential buyers to sign a non-disclosure agreement before sharing any sensitive business information. This protects your company’s confidential details while allowing you to assess their suitability.
Examine the buyer’s financial capacity through proof of funds or evidence of financing arrangements. A serious buyer should be able to demonstrate they have the resources to complete the purchase and sustain business operations.
Look for buyers with relevant industry experience or a clear vision for the business’s future. Strategic buyers from your industry may better understand your business model and its value, while financial buyers focus primarily on investment returns.
Consider the buyer’s track record with previous business acquisitions. Those with a successful buying history are more likely to complete the transaction efficiently and operate the business effectively afterwards.
Pay attention to how potential buyers conduct themselves during initial discussions. Serious buyers ask detailed questions about business operations, financials, and growth opportunities rather than focusing solely on price negotiations.
Evaluate whether the buyer’s goals align with your priorities for the business’s future. This includes their plans for existing employees, relationships with suppliers and customers, and overall strategic direction.
Request documentation of their business plan and intended funding structure. This helps verify they have thoroughly considered the acquisition and have realistic expectations about operating the business.
Utilising Networks and Brokers to Find the Ideal Buyer
Finding a buyer for your company through existing networks or professional brokers can significantly increase your chances of a successful share sale. These approaches provide access to qualified buyers who understand your business’s value.
Leveraging Existing Networks
Key employees make excellent potential buyers for your company. They already know your business operations and may be interested in ownership. You could offer equity to valued employees in stages as part of your succession plan, particularly in niche industries where finding external buyers is challenging.
Suppliers and customers can be strong candidates if your business would complement their operations. For example, a cleaning services business might benefit from acquiring their cleaning product supplier. When approaching competitors as potential buyers, use caution with sensitive information. Consider engaging a third-party intermediary who can share redacted details before confirming serious interest.
Before sharing any business information, have potential purchasers sign a detailed confidentiality agreement. This protects your business from competitors using sensitive details for their own gain.
Engaging Business Brokers
Business brokers provide valuable expertise in finding qualified buyers, especially when suitable candidates aren’t available within existing networks. Quality brokers understand the share sale process and maintain extensive networks to locate appropriate buyers.
Their services typically include:
- Preparing marketing materials
- Analysing business information for valuation
- Marketing through various channels including online, newspaper and magazine listings
- Qualifying potential buyers
- Managing due diligence
- Coordinating completion between parties
Broker fees vary based on services and agency agreements. Most charge a commission calculated as a percentage of the final sale price, payable upon completion or in certain defined situations. Some may require upfront fees for advertising and marketing expenses.
Speak to a Lawyer Today
We call back within 24 hours.
Preparing for Due Diligence
When selling your business through a share sale, it’s crucial to be prepared for the due diligence process. Due diligence is a comprehensive investigation conducted by potential buyers to verify the accuracy and completeness of the information you’ve provided about your company. This process helps buyers assess the risks and opportunities associated with the acquisition.
To ensure a smooth due diligence process, you should:
- Gather and organise all relevant documents, including financial statements, contracts, licenses, and legal agreements.
- Be transparent about any potential issues or liabilities, as attempting to conceal them can jeopardise the sale and lead to legal consequences.
- Engage professionals, such as accountants and lawyers, to review your documents and ensure they are accurate and compliant.
- Prepare detailed explanations for any irregularities or areas of concern that may arise during the buyer’s review.
- Establish a secure virtual data room to share confidential information with potential buyers who have signed non-disclosure agreements.
For example, if your company has pending legal disputes, it’s essential to disclose these to potential buyers and provide documentation on the status and potential impact of these cases. Failing to do so could be considered misleading and result in legal action from the buyer post-sale.
By being proactive and transparent during the due diligence process, you demonstrate your commitment to a fair and honest transaction. This approach can help build trust with potential buyers and increase the likelihood of a successful sale on favourable terms.
Negotiating the Sale
When negotiating a share sale, the focus must be on achieving terms that benefit both parties while protecting your interests. A well-structured negotiation starts with having potential buyers sign a confidentiality agreement before sharing sensitive business information.
The sale price and payment terms form key elements of negotiations. Strategic buyers often pay more than financial buyers since they understand how your business adds value to their existing operations.
During negotiations, be prepared to address the buyer’s concerns about taking over existing company liabilities. Since a share sale involves transferring the entire company structure, buyers need assurance about any potential “skeletons” in the company’s closet.
Key negotiation points typically include:
- Purchase price and payment structure
- Warranties about financial statements and business operations
- Indemnities to protect against undisclosed liabilities
- Post-sale involvement requirements
- Employee and management transition plans
The buyer will likely request detailed financial records and statements during negotiations. Have these documents prepared accurately, as any misrepresentation could lead to legal issues later.
For complex negotiations, consider engaging professional advisors like business brokers. They can help manage the process, qualify serious buyers, and work toward completing the sale on favourable terms.
Conclusion
Finding the right buyer for your business through a share sale is a complex process that requires careful planning and execution. By understanding the characteristics of an ideal buyer, qualifying potential buyers, leveraging your networks, and engaging business brokers, you can increase your chances of finding a buyer who aligns with your goals and can continue your company’s legacy.
Preparing for due diligence and negotiating favourable terms are also crucial steps in ensuring a successful share sale. With the right approach and professional guidance, you can navigate the challenges of finding the right buyer and achieve a positive outcome for yourself and your business.
Secure expert advice tailored to your needs—schedule a consultation.
Frequently Asked Questions
