There are a number of circumstances in which it might be preferable to exit a business. Whether you no longer want to be involved in the running of the venture or are keen to cash in your shares for their maximum value, selling your business via a trade sale can help to ensure a smooth exit.
What Is A Trade Sale?
A trade sale is when a business is sold to another company operating in the same industry or field. Unlike other forms of business sale where ownership might change hands to shareholders or internal management, a trade sale involves selling shares, assets, or the whole business, to an external buyer.
Given that the buyer typically has a pre-existing presence in or awareness of the industry, trade sales usually allow for a smooth transition to the new ownership and a simple exit for the current owners. While the process that initiates this sale will depend on the unique circumstances of each business, it will usually begin with valuing the business and its assets and approaching possible buyers. When a sale is agreed upon, a process of due diligence and legal advice will begin, after which the sale can be finalised and the buyer can begin taking over the business.
Pros Of A Trade Sale
Besides offering existing business owners a suitable exit strategy, there are a number of reasons why a trade sale might be a worthy consideration. These include:
Combine Expertise & Resources
Selling your business to another in the same industry is the perfect opportunity to combine expertise and resources and therefore achieve new levels of growth. Both parties involved in the sale will have their own specialities and niches and bringing these together allows for a new synergy of knowledge and information. This can help boost sales and profitability, and help access and unlock areas of the market that may previously have been out of reach for both sides of the sale.
Maximise Sale Value
Trade sales often result in the seller getting the most value for the business/their shares. Potential buyers are likely to place a premium on the strategic advantages they stand to gain from the acquisition and the convenience of acquiring a business within the same space. In a similar vein, the possibility of the business being sold via a trade sale to another competitor within the industry is likely to increase its value to a possible buyer. They will not want to miss out on the growth opportunity and will therefore be prepared to pay a premium.
Possible Rescue Strategy
While we often think about a trade sale as being between two solvent companies, this form of business sale can also help insolvent businesses secure their future when in company administration. In these circumstances, a licensed insolvency practitioner will oversee the process and be in charge of finding a suitable buyer but the ability for trade buyers to purchase remains the same. For a trade sale to be successful in administration, it must be deemed the best outcome for creditors and the sold business must be deemed viable in the long term
A trade sale can also take place in pre-pack administration. A licensed insolvency practitioner is again involved but only once the buyer has been found.
Cons Of A Trade Sale
However, a trade sale is not right in all circumstances. While this isn’t as much of an issue if you are trying to exit the business to reduce your involvement in running it, a trade sale will result in a loss of control as the new owners take over.
It is also important to bear in mind how the sale of the business may affect morale. If staff have worked under one ownership for some time, the prospect of working under new owners may add a degree of uncertainty which could reduce productivity and even lead to key members of staff leaving the business. Equally, if staff remain with the business it’s important to watch out for clashes in culture between the existing and new workforce. It’s therefore important to carefully manage the coming together when the sale is finalised.
If your business is considering its options and weighing up the possibility of a trade sale, make sure that you consult the relevant experts first. Solvent businesses should always get independent advice from a professional to weigh up the pros and cons and come up with an appropriate plan to manage the transition in ownership. Insolvent businesses considering a trade sale should also seek professional advice and speak to a business rescue expert as soon as possible to discover the viability and increase the likelihood of this being a successful rescue option. Get in touch with the team at Ballard Business Recovery for transparent advice whatever your situation.
