Selling Your Business to Another Corporation

By Brian MacMillan | Managing Director

Once you have decided to sell your business, one of your most important jobs will be finding a buyer and getting the best possible deal. A merger & acquisition advisor can help you evaluate different kinds of potential buyers and target those who would most likely have some interest in purchasing your business. One option you might want to consider is selling your business to another corporation. Any corporation interested in buying your business — whether it be a large, publicly owned corporation or a small private firm — will have its own strategic reasons for wanting to do so. For example, the purchasing corporation might want to expand its market, eliminate competition, or acquire your business’s assets and real estate location.

Selling to another corporation involves exchanging your business’s assets or corporate stock for either cash or stock (or both) in the acquiring corporation. Tax consequences and other issues will depend largely on the form of payment you receive. Working with your mergers & acquisitions advisor along with a tax advisor and/or attorney can help you structure the sale so as to maximize your profit.

Mergers and acquisitions (M&A): A merger is the process of joining the assets and liabilities of your company with those of another company. This can result in the formation of an entirely new corporation (sometimes called a consolidation) or the absorption of one company into the other (merger). An acquisition occurs when another company purchases your company and runs it as a subsidiary under a larger corporate umbrella. Choosing one of these options may result in an all-cash buyout and it could also involve some kind of stock swap. Although structuring M&As can be complicated and time consuming, they offer certain tax benefits and may allow you to retain an ownership position if you do not want to completely sever all ties with your business.

Selling to a corporation can be more profitable: Corporations, particularly large ones, tend to have more disposable capital than private parties. They also tend to take a more strategic, long-term approach. They look beyond immediate profits and focus on potential future gains that can be realized through the acquisition of other companies. For these two reasons, a corporation could be willing to pay a higher price for a viable business thanwould a private party with limited capita and a more short-term approach.

You may be able to retain some control: If you structure the sale of your business as an M&A transaction, you may be able to balance your desire to sell with your desire to retain some control. If you do not want to cash out entirely and pursue something else, an M&A transaction may give you expansion capital for your business while at the same time allowing you to retain an ownership position.

It can be difficult to find a corporate buyer: Corporations have strategic reasons for everything they do. In general, most corporations only consider buying companies that have solid track records, strong market positions, and promising growth potential. Thus, you may have difficulty finding a corporation that wants to buy your business, especially if your business has been less than a star performer in its industry. A mergers & acquisitions advisor can confidentially market your business to multiple corporations to ensure that you obtain the best offer available in the market.

There can be disadvantages to receiving stock as payment: In some cases, selling to a corporation will require you to accept the corporation’s stock as partial or full payment for your business. Receiving stock can prove to be a boon on the one hand if the value of the stock rises over the long term. However, there are risks involved in owning another corporation’s stock, whether that corporation is public or privately held.

How to do it: Hire a mergers & acquisitions advisor to assist you with planning the sale. Take the necessary steps to prepare your business for sale. Determine the value of your business, perhaps through a professional appraisal. Have a personal financial plan completed to ensure that the sale will fit into your overall personal financial objectives. Confidentially find a corporation interested in purchasing your business. Negotiate a sale price as well as form(s) of payment. Once you have reached an agreement, have a qualified attorney with mergers & acquisitions experience draw up the documentation outlining the terms. Please contact the mergers & acquisitions team at BWFA and set up a free initial consultation to discuss the various options available to you when selling your privately held business.