Business Brokers: Sellers Retaining Assets
Sellers retaining assets is not unheard of in our business, especially when we get into the lower Middle Market and above or when we’re working with a very specialized business.
When we assist with the sale of a business, it is generally considered an “asset sale” in that it involves the sale of all the assets of an ongoing business – and an asset sale is generally preferable to a stock sale insofar as an asset sale significantly reduces the buyer’s potential for liability due to past actions or inactions of the seller.
But this discussion is about a business owner selling his or her ongoing business except for certain assets. How should a broker handle this when discussing the sale with the business owner? Well that depends on the assets the owner wants to keep.
Assets, Assets and Assets
There are all sorts of assets: inventory, real estate, FF&E (furniture, fixtures and equipment), tools, accounts receivable, intellectual property (IP), patents, trademarks, licenses and on and on. I’ve done posts on how to handle real estate when brokering the sale of a business as well as on how to deal with fluctuating inventory as the closing date approaches. This post gives an example of a simple deal in which a critical piece of equipment was retained by the seller. It also describes a more complex deal in which the seller wanted to keep a particular technology he developed and license that technology to the buyer.Hold on to That Crane!
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Hold on to That Patent!
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This, of course, precipitated a number of issues. among them:
- What was the approximate value of the technology to the business? I.e., what would the financials look like if the business operated without the technology? The value of the business would necessarily be reduced.
- How should a licensing fee be determined? This would be an added expense, further reducing discretionary income and, thus, value.
- Would the seller be permitted to license the technology to other companies and, if so, on what terms
- If licensing to other companies was permitted, would such licensing, due to anticipated competitive pricing by other companies, even further diminish the value of the company we were to sell and, assuming it did, by how much?
The Options
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The Bottom Line
What did we do? We discussed the benefits of finding some middle ground and ended up giving the buyer a period of exclusivity after which the seller would be able to license the technology to others. This approach resulted in a higher initial value for the company we were selling but also gave the seller the opportunity to maximize the value of the license over time. Were there risks in this approach? Yes, there were several. The biggest one was the possibility that the technology would become obsolete by the time the exclusivity period expired. The seller deemed this unlikely and struck the deal, happy with the results. If you want to become a business broker, you’ll learn that – with apologies to any PETA members among you – as the old saying goes, there are “many ways to skin a cat”. You’ll also learn that this expression is pertinent to all aspects of structuring deals._____________________________________________________________________________
Our course, The Basic “How-To” of Becoming a Business Broker”, teaches how to become a professional business broker.
Become a Professional Business Broker…
If you have any questions, comments or feedback on this topic – or any topic related to business – I want to hear from you. Put them in the Comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast. I’ll be back with you again next Monday. In the meantime, I hope you have a profitable week! Joe![](https://www.worldwidebusinessbrokers.com/wp-content/uploads/2018/07/Head-Shot-2008-225x300.jpg)