Adding extra value to the business, financing the takeover and optimising tax arrangements
The transfer of a small or medium-sized enterprise (SME) is a complex process that raises vital financial issues. Enhancing the value of the business, finding the resources needed to finance the takeover and optimising tax arrangements are key steps in ensuring the success of the transaction. Here are some explanations from the experts at AURIS Finance, a consultancy specialising in mergers and acquisitions.
Adding value to the company: a fundamental step
The initial step in a company transfer is the valuation process. This entails ascertaining the fair value of the SME, considering its assets, financial performance and growth potential. There are a number of valuation methods that can be employed, including the calculation of the EBITDA multiple (earnings before interest, tax, depreciation and amortisation) or the patrimonial approach, which values the company on the basis of its assets and liabilities.
In the context of a company transfer, there is often a discrepancy between the valuation placed on the business by the seller and the buyer. The seller will typically base their assessment on historical results, whereas the buyer will seek to evaluate the company’s future potential. To achieve an accurate and realistic valuation, it is essential to seek the expertise of professionals. Furthermore, the appraisal must consider intangible assets, such as the company’s reputation, patents and brands, which can generate value over time.
Financing the takeover: customised solutions
Once the valuation has been established, the next step is to determine the most appropriate financing strategy for the takeover. There are a number of ways in which the buyer can finance the transaction. One such method is the leveraged buyout (LBO), which is a preferred option for SME transfers. This method entails leveraging equity capital and a bank loan to finance the acquisition. A robust financial package, comprising an LBO or alternative financing options such as mezzanine debt, allows the buyer to minimise their personal investment while optimising the profitability of the investment.
The personal capital contribution made by the buyer is also a key determining factor. In the case of family-owned SMEs, intra-family arrangements can be considered to facilitate a takeover by a family member, with advantageous financial and tax solutions. In addition, publicly funded support for company takeovers – such as equity crowdfunding schemes or low-interest loans – can be used to reduce the cost of financing.
Tax optimisation: a performance driver
The transfer of an SME has fiscal consequences for both the transferor and the transferee. It is therefore important to anticipate and optimise the tax implications for both parties. The Dutreil pact, for example, allows partial exemption from transfer duties in the event of a family transfer, provided certain conditions are met. This is particularly beneficial for SMEs, where intra-family transfers are common practice.
On the seller’s side, the capital gain generated on the sale of the company is subject to income tax. However, certain exemptions or reductions may apply depending on the length of time the business has been held or the age of the seller. Optimal tax advice is essential for the successful transfer of a company, whether to a family member or a third party.
Finally, it is also crucial for the buyer to evaluate the tax benefits inherent to the chosen financing structure. Using debt to finance the acquisition, for example, means that the borrowing interest can be deducted from the taxable income of the company being acquired, which is a lever for optimising the profitability of the transaction.
Essential support for a successful handover
The transfer of an SME is a strategic process that requires careful planning and anticipation over several years. To optimise the chances of success, it is essential to consider the value of the company, the financial arrangements and tax optimisation. Each transfer is unique and requires a bespoke approach.
Our experts at your service
At AURIS Finance, we provide comprehensive support to both sellers and buyers throughout the financial and tax aspects of transferring an SME. Our team of experts is available to assist you in optimising the value of the business, structuring the financing of the takeover and optimising the tax impact of the transaction. By applying rigorous management to these key aspects, you can transform the transfer into a lever for sustainable growth. To find out more, please contact us.
