Business Sales & Acquisitions

Selling or acquiring a business is one of the most consequential transactions a director or business owner will undertake. For sellers, it is often the culmination of years of work, and the sale price and deal structure will determine whether that work translates into real value. For buyers, the risk is acquiring a business that is worth less than it appears, with liabilities that were not visible at the time of purchase.

The difference between a well-structured deal and a poorly structured one is not always apparent at signing. It becomes apparent months or years later, when a warranty claim lands, a key employee leaves because the restraint was unenforceable, a tax liability materialises that nobody accounted for, or a seller discovers they left significant value on the table because they accepted the wrong deal structure.

The first structural question in any business acquisition is whether the transaction will be a share sale or an asset sale.

In a share sale, the buyer acquires the shares in the company that owns the business. The company continues to exist with all of its assets, contracts, employees and liabilities. The buyer steps into the shoes of the existing shareholders. The advantage is simplicity: the business continues to operate without disruption, contracts do not need to be novated, and employees transfer automatically. The disadvantage is that the buyer inherits everything, including liabilities that may not be fully visible at the time of sale.

In an asset sale, the buyer acquires specific assets of the business: plant and equipment, intellectual property, customer contracts, goodwill, stock. The buyer chooses what to take and what to leave behind. The advantage is that the buyer can cherry-pick the assets and avoid unwanted liabilities. The disadvantage is complexity: each asset must be individually transferred, contracts may need to be novated or assigned (which requires the other party's consent), employees may need to be terminated and re-hired, and the tax treatment is different.

The choice between the two structures has significant implications for price, tax, risk allocation and the practical mechanics of the transaction. It is one of the first things that needs to be worked through with legal and tax advisers.

Due diligence is the process of investigating the target business before committing to the transaction. For buyers, it is the primary means of identifying risk. For sellers, presenting a well-organised business for due diligence signals professionalism and protects value.

A thorough due diligence process covers the company's financial position, tax compliance, material contracts, employment arrangements (including any entitlements, restraints and key person dependencies), intellectual property, real property, regulatory compliance, litigation exposure, insurance, and corporate governance.

Vendor due diligence, where the seller commissions the due diligence process before going to market, is increasingly common. It allows the seller to identify and address issues before they become deal-breakers, and presents the business to prospective buyers in the best possible light.

The sale agreement is the central document in the transaction. Whether it is a share sale agreement or an asset sale agreement, the key commercial terms include:

Price and payment. The purchase price may be a fixed sum paid at completion, or it may include deferred consideration, earn-out payments tied to post-completion performance, or adjustments based on completion accounts. Each structure allocates risk differently between buyer and seller.

Warranties and indemnities. The seller gives warranties about the state of the business at completion. If a warranty turns out to be untrue, the buyer has a claim for loss. Indemnities are more targeted: the seller agrees to compensate the buyer dollar-for-dollar for specific identified risks. The scope, limitations and survival periods of the warranty and indemnity regime are among the most heavily negotiated provisions in any sale agreement.

Restraint of trade. The buyer will typically require the seller not to compete with the business for a defined period after completion. The restraint must be reasonable in scope, geography and duration to be enforceable. Getting this wrong can leave the buyer exposed to the seller setting up a competing business.

Conditions precedent. These are the conditions that must be satisfied before completion can occur. They may include regulatory approvals (such as FIRB approval for foreign buyers), landlord consent to assignment of a lease, or third-party consents for key contracts.

Completion mechanics. The agreement sets out what happens on completion day: the simultaneous exchange of consideration and delivery of the business, transfer of shares or assets, resignations of directors, release of security interests, and any transitional arrangements.

The tax implications of a business sale differ significantly depending on whether the transaction is structured as a share sale or an asset sale, and the specific circumstances of the seller.

For sellers, the key considerations include capital gains tax, the availability of the small business CGT concessions (which can eliminate or significantly reduce the tax payable on the sale of an active business), and the treatment of any earn-out or deferred consideration. For buyers, the considerations include stamp duty (which varies by state and by whether the transaction is a share sale or asset sale), the tax cost base of acquired assets, and the deductibility of acquisition costs.

Tax structuring should be addressed early in the transaction, not as an afterthought. The difference between a well-structured and a poorly-structured deal from a tax perspective can be measured in hundreds of thousands of dollars.

Depending on the nature of the business and the identity of the buyer, regulatory approvals may be required before the transaction can complete. The most common are FIRB approval (where the buyer is a foreign person and the transaction meets the relevant thresholds), ACCC clearance (where the acquisition may substantially lessen competition), and industry-specific regulatory approvals for businesses in regulated sectors.