ADVICE FOR FRANCHISEES

payment ter ms which may or may not be conditional on the business meeting future perfor mance targets

Ag reed valuations will take into consideration many factors which will differ from sector to sector but from a banking perspective, we are interested in the ratio of the sale price to the historic cashflow generation (also known as EBITDA or Ear nings Before Interest Tax Depreciation and Amor tisation).

The EBITDA demonstrates the cashflow generation of the business and critically, the business’ ability to sustainably repay any debt that is incur red as par t of the acquisition The ability of a business to afford any associated debt repayments of an acquisition will be the driving factor in a bank’s ability to f inancially suppor t an acquisition

Whilst a buyer may be willing to pay g reater multiples than the bank is willing to fund, EBITDA will be reviewed over a number of years to ensure that the

EBITDA generated is stable and sustainable, this provides the Bank and the buyer with some protection in the event that sales decline, or costs increase (inflationar y pressures, interest rate increases, etc )

Once a potential buyer or buyer(s) has been lined up, there will be critical considerations around Asset Sale versus Share Sale In a share sale, the buyer purchases the shares in the trading company, the ownership of the company changes but the trading business continues as before

Whereas in an asset sale, the trading business is transfer red from buyer to seller and after completion, the seller is left with a shell company, with the assets transfer red to the buyer The business is operated by the buyer through a different legal entity

Each have their merits and the route chosen will often depend on the sector, the legal nature of the business (is it