[EP 259] Ask Me Anything: Asset Sale vs Share Sale – Which is the Best Way to Sell? With Hugo Martin and Harry Notaras

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Transcript below!

Note: This has been automatically transcribed so will be full of errors! We are not providing it to you as a word-perfect version of the podcast but just as an easy way to provide you with a different way to be able to scan for information that might be relevant to you.

Joanna:  Hi, it’s Joanna Oakey here and welcome back to The Deal Room, a podcast proudly brought to you by our commercial legal practice, Aspect Legal. 

Today, we’re stirring things up a bit with another of our special segments. It’s time for another thrilling episode of Ask Me Anything!

Now, if you’re new to The Deal Room Podcast, let me give you a quick rundown. Our Ask Me Anything Segment is where I dive into the questions you, our incredible listeners, send in. And not just your questions, but we also feature queries from our fabulous guests and those interesting nuggets we encounter during our day-to-day practice.

So, here’s your chance to have your burning questions answered. Email us at [email protected] – we’re eagerly awaiting your queries! And don’t worry, you’ll find the link in the show notes for easy access.

Don’t hold back! We’re open to talking about anything and everything on our podcast. So buckle up, because it’s time for another thrilling edition of Ask Me Anything!

Hugo:  Harry and I were talking about one of the major from a legal perspective, like getting a transaction right at the beginning, obviously, when you look at a transaction, is it best to sell it as an asset sale? Or a share sale? And sometimes you can see this happen because the only way to transact this effectively is a share sale and sellers and lawyers say “Ok perfect” and then the buyer says “No, under no circumstances”.

Joanna:   Well, yeah, so I have a few different responses to that. I mean, the first thing is the importance of sellers getting that tax advice straight up so they understand the tax position that they’ll be in because that really is the thing that can drive the necessity from a seller’s perspective for a share sale if they’ve gotten tax advice, that there will be a big difference for them. And the second component I would add to that, though, is to make sure you’re getting the right tax advice because just like most commercial lawyers don’t do business sales day in and day out most accountants don’t deal with the tax concessions at sales have businesses day in day out. Because if you think about it in the business lifecycle, usually that sale only happens once in a business’s lifecycle. So you know, your average accountant does not deal with it on a daily basis, just like your average lawyer doesn’t deal with business sales on a daily basis. 

Joanna:  So making sure you’ve got the right advice because I have some interesting examples of cases where our clients were told that they needed chair sales in order to access the best concessions for them. And we got second opinions and the second opinion actually said business sale, not just was would provide a similar outcome, but in fact a better outcome, because of the way it was done. So So that’s the first thing it’s not just to get advice, but to make sure you’re getting the right advice. But once you understand that, and if you find out there is a difference in your tax position between a business sale and a share sale, then the next step is convincing a buyer of that approach as well. 

Joanna: And I find that it depends on the value of the transaction, the type of business and the risks that can sit that is likely the setting of the business and also the sophistication of the organization of the business because if a buyer comes in, does a bit of DD and sees a bit of a mess, there’s no way they’re going to want the risks that come with a share sale so it’s about being properly prepped for the exit as well so that you look clean and well run. But for share sales I generally have this we have buyers who will come in and be happy with share sales at almost any level in some industries depending on the industry. But generally speaking, for you know across the board making a sweeping generalization mostly share sales only start to really make sense from about 2 million up under 2 million. I’m not sure that they they They really are the best approach because there is more complexity because the legal documents are more complex because there’ll be a bit more argy-bargy in the, you know, the warranties and what they look like. But there are lots of things for that and positives for a buyer in a share sale versus business sale environment. 

Joanna:  A lot of them relate to an easier transition of the business as a whole, because you’re not, you’re not disturbing the customers needing them to sign on to new credit accounts, not disturbing the suppliers, not disturbing staff contracts, you know, it can be a much cleaner transition with a share sale than with a business sale. And also it can help to preserve the value that the buyer is actually buying in a business when that’s a share sale versus a business sale. And of course, the risk is the thing that buyers or their advisors, usually accountants are particularly picking up on, but the risk can be dealt with by appropriate warranties. And as to your point, well, you know, as to the feedback you’ve had that, you know, warranties aren’t worth the paper they’re written on or whatever. I mean, I don’t know that and of course, I don’t agree with that, because I’m a lawyer. Hahaha

Joanna:  Well, it sometimes it’s a question of what security you have as a buyer for a warranty claim, and there are so many approaches to security that you can have. And also there’s this great insurance in the market now for SME deals for warranty and indemnity insurance, which is, you know, can be very cheap, but we’ve got access to insurance that comes in at around about 10k per one mil of cover, and then that takes away that that buyer concern about the risk under warranty claims because there is an insurance policy backing, that those warranties. So, you know, there’s my thoughts, there’s lots to think about. 

Joanna:  In some transactions, it’s not tax that drives it, it’s licenses that the business might have or contracts that the business might have that might mean in an under $2 million sale, you do still need to have a look at the share sale. It’s definitely more complex. And that’s something sellers should go into and buyers with their eyes wide open. But there are ways and means of getting buyers to agree if you’ve got a good marketing pitch for them. 

Harry:  Because you know, one of the big selling points is always nice and simple. But it’s not like that at all.

Joanna:  That’s right. No, it is more. It’s absolutely more complex. Nothing simple. That’s nothing in life is simple. Yeah. look wonderful. Thank you so much, I hope but I hope that was an answer to your question. 

Hugo and Harry:  Yes, it very much did. Thank you.

Joanna:  Wonderful.

 Well, that’s it for this episode of The Deal Room Podcast. We hope you’re now primed for your next deal with these pointers and have enjoyed these fascinating insights. Now if you’d like more information about this topic, then head over to our website at thedealroompodcast.com, where you’ll be able to download a transcript of this episode as well as access any contact details and any other additional information we referred to in today’s podcast. 

Now if you’d like to get in contact with our guests today and the services they offer, you can go ahead and check out our show notes for a link right through to them and their details. You can also book indirectly with our Legal Eagles at Aspect Legal. If you’d like to soundboard your next steps, discuss a legal question or find out more about how we can assist whether that’s with buying or selling a business or perhaps somewhere in between. 

Now, don’t forget to subscribe to The Deal Room Podcast on your favourite podcast player to get notifications whenever a new episode is out. We’d also love to hear your feedback. So please leave us a review and rating. If you’re already one of our subscribers or even if you’re listening to this podcast for the very first time, every review helps our team produce valuable content for you. 

Well, thanks again for listening in. You’ve been listening to Joanna Oakey and The Deal Room Podcast, a podcast proudly brought to you by our commercial legal practice Aspect Legal See you next time.

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We work with clients both big and small and have different types of services depending on size and complexity. We provide a free consultation to discuss your proposed sale or acquisition – so see our show notes on how to book a time to speak with us, or head over to our website at Aspectlegal.com.au