What is a trade sale and what are the benefits?

What is a trade sale?

A trade sale is a form of business sale where a company can be sold to another business typically operating in the same industry or sector, either based in the UK or overseas. This option involves taking a number of legal, financial, and structural steps to prepare your business for sale.

What are the benefits?

Selling to a trade buyer is often the cleanest form of transaction, meaning vendors often achieve the full value of the business on day one.

Given the third-party buyer is likely to have familiarity of your sector/industry, this can make the sale process more efficient as the potential buyer understands the characteristics and demands of the industry.

A trade sale allows the owner to explore new opportunities such as fresh business ideas, diversify business assets into other investments or simply allows you to spend more time with your family. The proceeds of sale can aid your retirement or other personal, financial objectives by realising the investment of your business in full.

However, in some cases, if you wish to stay involved in the business, there is the opportunity to build a role within the group. External trade buyer negotiations can be more ruthless as personal relationships may not be as important or relevant. With less emotion attached to the negotiations over other transition options, it means that if a potential deal does not feel suitable, then it is easier to just end the process.

Structuring a competitive bidding process, with a number of potential buyers bidding on the business, the outcome sale price is often higher compared to conversations held with just a single potential buyer. They may also be able to generate synergies on the acquisition and as a result, potentially pay more for your business as a result.

What do you need to consider with a trade sale?

While trade sales can be the quickest way to realise the full value of your business, they do come with their own set of challenges. These include:

• The need for extensive business preparation, including collation of legal and financial information in a format for third parties to review
• Disruption to your business as buyers undertake due diligence – this is likely to be a distraction for you and your management team as you answer questions and prepare information
• The emotional impact of selling your business to a competitor – it can be challenging to “let go” of the business that you have built and developed
• Providing information to competitors – it is important to consider what you are comfortable providing and what is commercially sensitive
• The impact on staff, customers and suppliers – what will happen to them once you sell the business?

What's next if you would like to pursue a trade sale?

The first stop should be a robust, independent valuation of the business and its future income. An audit of your financial systems is also important to identify any potential barriers. These can then be addressed or reflected in the sale structure or strategy. The next step is to identify resource to deliver the sale and solidify your time frames. Along with the sale negotiations, a full personal, financial and investment plan should also be drawn up for the proceeds of sale, considering tax implications and future personal objectives.

Get in touch

If you’d like to know more about trade sales and how our team of deal advisory, tax and financial planning advisors can assist, please use the contact form below.

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How can we support you?

Our deal advisory, tax and financial planning advisors can support you through all stages of the trade sale process. We will work with you to:

• Help you understand what your business is worth and what you can do to maximise that valuation
• Identify and contact potential buyers across our international network
• Prepare marketing materials to position your business in the best light, including a business plan, teaser, and information memorandum
• Help you prepare the business for sale, including gathering financial and other information to ensure you are ready for a potential buyer’s due diligence process
• Design a bespoke sales process and manage it closely from inception to completion, liaising with the various legal and accounting advisors, creating competitive tension amongst buyers, and minimising the burden on you as you continue to run your business
• Advise you and negotiate on your behalf, all key elements of the transaction to ensure you get the best deal possible
• Highlight any potential tax exposure for any relevant transactions, both for you personally and the business, to ensure you have clarity over your net proceeds from a deal
• Undertake a thorough exploration of your individual circumstances as well as the business in order to identify and consider any tax reliefs that may mitigate your tax exposure and ensure any tax traps are understood and navigated in order to provide a bespoke tax plan as part of your strategy
• Advise you on alternative deal structures to ensure tax efficiency, where appropriate
• Manage and obtain relevant clearances from HMRC on your behalf, where appropriate
• Advise you of your reporting requirements to HMRC in order to minimise the burden and give you peace of mind
• Calculate the level of capital required from the sale to meet your personal objectives and provide security, using sophisticated cash flow forecasting tools. This helps you understand what is needed and what is aspirational when entering into negotiations
• Advise you on how to invest the sale proceeds to meet your objectives, including a review of existing investments and pensions to ensure they are used to best effect
• Work with you in advance of the sale to agree to a personal financial plan, so plans can be implemented efficiently once proceeds are received