Can you sell part of a business?
Spinning off non-core or non-performing divisions is a common enough business practice.
In this post, we’re going to tackle the operational and legal implications of divesting, as well as consider how to position yourself so you get the best asking price.
We’ll also be answering two fundamental questions:
- Can you sell a business without the name?
- Can you sell a business without a lease?
Before we do so, however, here’s a quick look at the advantages and disadvantages of selling part of your business.
What are the benefits of divesting business units?
Well, divesting business units can be advantageous. You stand to:
- Potentially grow your profits
- Increase the company’s market valuation
- Receive financial remuneration through asset liquidation
- Free up resources to focus on more profitable business divisions
- Provide a growth opportunity for the remaining business
- While retaining control of the remaining portion of the business
Pruning a business also has its downsides. You may be forced to:
- Execute mass layoffs and
- Force some employees into early retirement
Former CEO of General Electric, Jack Welch, and his divesting model make for an interesting case study. During his 20-year tenure, Welch grew GE’s profits from $1.5 billion to $15 billion and raised the company’s market valuation from $14 billion to $400 billion. As impressive as all of this is, it came with the loss of over 100,000 jobs and thousands of forced retirements.
Let’s now turn our attention to the questions at hand.
Can you sell a business without the name?
Yes, and this is typically easier in the cases where each business division exists as a separate entity. So for example, if your paint company has two units – Division 1 called ‘TrueColors Incorporated’ and Division 2 ‘ColorWorks Incorporated’, a deal can be structured to divest either one without the need to use the business name of the other.
And what about a business without a lease?
Can you sell a business without a lease?
Many businesses today, especially those in retail, tend to have both a physical and an online presence. These are often taken as two divisions. Should a retailer decide that they no longer wish to retain the online division, they can sell it off.
The online business is an entity without a lease in the traditional sense. This would also be true if the business was operating a dropshipping model. So to answer the question, yes, you can sell a business without a lease.
Now, what about the operational and legal implications of selling a part of your business? Here’s what you need to know.
Divestiture operation and legal implications
Before considering the legal framework we have to start with the operational element.
Is it even operationally feasible first of all, to divide the business?
If the business is one entity (i.e. it’s a registered LLC/corporation), it is imperative that you start making attempts to separate divisions. Get each unit to be as independent as possible. The process may look like this:
- Separating profit and loss statements
- Having different websites for each division
- Having different contact details for each unit
- Having different staff to run each division
Doing this helps in three main ways. Firstly, it gives the buyer a good idea of what to expect during integration. Secondly, conducting the business valuation will be less challenging. And lastly, approaching third-party financers will be easier.
Your options for deal structures will either be an asset or stock sale. The structure pursued will depend on the following considerations:
1. Is your business viewed as a single entity?
If yes, then the only viable deal will be an asset sale. An asset sale is when the buyer acquires the individual assets via a Definitive Purchase Agreement (DPA), also known as an Asset Purchase Agreement (ASA).
2. Is each business division a separate entity?
If yes, then you have the freedom to pursue either an asset or stock sale. A stock sale is when the shares belonging to the division are sold to the buyer.
Positioning yourself to sell
You don’t have to wait until you’re ready to retire or exit to cash out. By strategically selling non-core divisions of your enterprise, you can, in theory, start taking some money off the table.
If you’re thinking of divestiture, a wise first step is to have a seasoned M&A broker assess your business and give you professional advice on the best way forward. Sun Acquisitions has a team of consultants ready to talk to you.
Contact us today.
Looking for more insight on selling a business? Check out these links:
- Where to Sell a Business
- When to Sell a Business
- How to Sell a Business Privately?
- What Documents are Needed to Sell a Business?
- Sell NOW – The Crystal Ball is Pretty Clear
Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.