A great way to expand your business or generate wealth is to buy another company. This can be as simple as buying a small business to provide a regular, passive income or the strategic scale-up of your operations into a new market to secure market share. This blog explains everything you need to know about buying a business in Spain
Either way, it’s an important step and you need to deploy your capital wisely. But unfortunately, money doesn’t grow on trees and making a bad investment can cost you cash or, worse, you may even inherit unknown debts.
There are five steps towards buying a business in Spain:
- Send a Letter of Intent. Also known as a non-binding Indicative Offer
- Sign a Confidentiality Agreement
- Perform Due Diligence
- Enter Negotiations
- Sign an Acquisition Agreement (Sales and Purchase Agreement)
What is a Letter of Intent?
A Letter of Intent is a document declaring the initial commitment of one party to do business with another. It provides the basis for a future proposed agreement.
When carefully drafted, it serves to protect both parties. The letter usually covers the following, in addition to the potential buyer’s presentation:
- The subject matter of the transaction.
- The price.
- Financing details.
- That the offer is not binding.
- Internal and third-party approvals, if applicable.
- Status of the due diligence review.
- Future plans for the target company.
What is due diligence when buying a business in Spain?
Due diligence is essentially an investigation. Due diligence examines the business you are interested in buying in Spain. A robust due diligence procedure should be completed before the transaction is finalized and will recommend whether or not to proceed with the acquisition.
The due diligence will identify the inherent opportunities and risks of the projected transaction as well as the liabilities and contingencies that could eventually modify the selling price. This could increase or decrease the final price and lead to more significant guarantees for the seller to commit to with the buyer when buying a business in Spain.
Due Diligence will help the Buyer:
- Evaluate what they are buying and where the weaknesses lie.
- Decide whether to proceed with the purchase.
- Establish the right price and the strength of their bargaining position.
- Identify any liabilities or risk areas that may affect how we structure the deal
- Identify areas where they require protection in the contractual documents through warranties and indemnities.
- Identify any third party consents which may be required. This could include consent from customers, suppliers or landlords.
- Identify areas that may need action following the acquisition—for example, streamlining operational matters with the systems and processes of the buyer’s group.
What is a Sales and Purchase Agreement?
After due diligence and agreeing to a Letter of Intent, the final step is to formalise the signing of a binding Sales Contract. This is one of the most important steps when buying a business in Spain.
A company can acquire business in one of two ways:
- By buying the shares in the company that owns the business. This is a share sale. The sellers are the company’s shareholders, and they will sell their stakes in the company to the buyer.
- Or the company can buy the assets. This would be a business or asset sale, and here the company is the seller, and it will sell some or all of its assets.
The Sales and Purchase Agreement usually establishes several conditions. These may include either suspending the transfer of ownership until they have been fulfilled or terminating it if they are left unmet. In addition, typical conditions are obtaining a necessary permit, license or authorization and submitting documentation with Public Institutions.
Once these conditions are met, the Agreement can be formalized with a Notary Public, the payment is made, and the shares or shareholdings of the company are transferred. This is a key part when buying a business in Spain
Working with a legal expert is essential if you plan to acquire a business or have identified a target company. They will look after your best interests and ensure that you achieve the best possible deal by assessing the quality of the business, the price and whether there are any nasty surprises, like undeclared debts.
Lexidy LegalTech Boutique is here to help you expand your business or start a new venture here. So put your best foot forward and contact us today if you are planning to buy a business in Spain.