Capittal's view: from headline price to bank account, what do I actually take home?

Quick answer

Capittal's view is that the headline price of a deal and the money that reaches your bank account at completion are two different numbers. Between them sit, in this order, net financial debt, the working capital adjustment, the part held back or deferred, adviser fees and taxes. The figure to negotiate is not the price: it is the cash available at completion and the calendar for everything else.

Why is the price of my shares not the value of my company?

Enterprise value measures the business regardless of how it is financed. The price of your shares, the equity value, is what the buyer pays you, and it comes from deducting net financial debt from enterprise value and then applying the working capital adjustment. In the Spanish mid-market the usual sequence is: normalised EBITDA times a multiple gives enterprise value, and from there you step down to the equity price.

• Net financial debt. Loans, credit lines, leases and recourse discounting, less available cash. The argument is not the balance but which items are included: dividends declared and unpaid, accrued holiday pay, management bonuses, shareholder loans or the transaction costs themselves usually end up inside.
• Surplus cash. Not all the cash in the company is yours. The buyer will leave in the operating cash the business needs to run and will only treat the excess as free cash.
• Working capital adjustment. A target level is agreed, calculated as the average of several prior months. Close above it and you collect the difference. Close below it and you lose it euro for euro.

Two offers with the same multiple can leave very different amounts in your account if they define net debt and working capital differently. Always compare equity price against equity price, never multiple against multiple.

How much of that price do I not receive on signing day?

You almost never collect one hundred per cent at signing. The price is split across three moments and each carries its own risk.

• Escrow or holdback. Part of the price is locked in an account or retained by the buyer to answer for contingencies arising after completion. What is negotiable is the amount, the period, who holds the money and which items can be deducted.
• Deferred payment. A tranche of the price is paid on future dates. What matters here is the security behind it: without a bank guarantee or a pledge, you are simply another creditor of the buyer.
• Earn-out. A payment conditional on the company hitting certain results after the sale. It is not price: it is a bet. It should only be accepted on a verifiable metric, with accounting rules written into the contract and with real ability to influence the outcome.

Always translate these three concepts into a calendar. A price with half of it split between a twenty-four month escrow and a three-year earn-out is a very different deal from the same price paid in cash, even though the headline is identical.

What will the advisers cost me?

Fees are paid out of the transaction proceeds and should be budgeted before you start. These are the items that appear in a mid-market sell-side mandate.

• M&A adviser. A retainer, monthly or upfront, covering preparation and the process, plus a success fee consisting of a percentage of the agreed price. That percentage is regressive: the larger the deal size, the lower the percentage applied. We have a dedicated article on how M&A adviser fees are structured.
• Lawyers. Negotiating and drafting the SPA, reviewing representations and warranties, key contracts and completion. Billed hourly or as a fixed fee with milestones.
• Tax adviser. Designing the structure of the sale before you start and calculating the impact on your personal tax position. This is the adviser who most often pays for himself.
• Quality of earnings auditor. An independent report that normalises EBITDA and anticipates the findings. It is a cost that reduces the risk of a price cut in the final stretch.
• Notary and registry. Formalising the share transfer in a public deed and the associated filings. The smallest item of all.

Before signing the mandate, decide with your tax adviser who engages and pays for each service, you personally or the company, because expenses inherent to the transfer borne by the seller reduce the transfer value used to compute the gain.

How much does the Spanish tax authority take if I sell as an individual?

If you sell the shares as an individual, the difference between the transfer value and the acquisition value is a capital gain taxed under personal income tax within the savings tax base, under Ley 35/2006. That base has a progressive banded scale applied to the total gains of the year.

• Transfer value. The price actually received, less the expenses and taxes inherent to the transfer borne by you as seller.
• Acquisition value. What the shares cost you, including any capital increases you subscribed. If the company was incorporated decades ago with a small share capital, your tax basis is small and almost the entire price is gain.
• Timing of the gain. Deferred consideration allows, under the conditions set by law, the gain to be recognised as the instalments become due. Earn-out and escrow have their own treatment and must be analysed before signing, not after.

Two warnings. First: tax is designed before the transaction, because afterwards it is only reported. Second: if you acquired the shares before 1995, transitional reduction coefficients may apply within the limits set by law, and your adviser has to check that with your deeds in front of him.

Should I sell through a holding company?

Selling through a holding company changes which tax applies. If the seller is a company, the gain is taxed under corporate income tax and may qualify for the participation exemption in article 21 of the Spanish Corporate Income Tax Act, provided its requirements are met.

• Minimum stake. The holding company must own at least 5% of the capital of the company being sold.
• Holding period. That stake must have been held without interruption during the year preceding the transfer.
• The exemption is not full. The law treats 5% of the income as non-deductible management expenses, so the exemption effectively covers 95% of the gain.
• The money stays inside the company. The exemption does not put cash in your pocket. Moving it to your personal wealth requires a dividend distribution, which is taxed.

This is why setting up the holding company three months before signing does not work. The holding period requirement forces planning more than a year ahead, and contributing the shares to a holding company under the tax neutrality regime must have a valid business reason, not merely a tax saving. Building it once the deal is already negotiated invites the tax authority to review it.

One further point: share transfers are generally exempt from VAT and from transfer tax, except for the anti-avoidance rule applying to companies whose assets consist mainly of real estate.

What still binds me after I get paid?

Getting paid is not the end. Three blocks stay alive after completion and can send part of the money back to the buyer.

• Personal guarantees not released. If you have personally guaranteed loans, working capital lines, leases or the lease of the premises, selling the shares does not release you: the bank or the landlord has to accept it expressly. The release is negotiated and documented before completion, not after.
• Representations and warranties in the SPA. You state that the accounts, the contracts, the tax and employment position and the ownership of assets are what you say they are. If a covered contingency emerges, you answer with your own money, up to the agreed cap and within the agreed period.
• Non-compete and lock-in. It is standard to undertake not to compete for a number of years and, in many deals, to stay in the business for a while. If there is pay attached to staying, it is taxed as employment income and not as a capital gain.

All three blocks have a price in the negotiation. A shorter warranty period, a lower liability cap or a warranty and indemnity insurance policy are concessions you can ask for when you give ground on price.

How do I work out on the back of an envelope what I keep?

This is the mental template we use with owners in the first conversation. It does not replace the detailed calculation, but it organises the discussion in five minutes.

• Start with enterprise value. Normalised EBITDA times the multiple the market pays in your sector and at your size.
• Deduct net financial debt. With the full list of debt-like items, not just the bank loan.
• Apply the working capital adjustment. Add or subtract depending on whether you close above or below the target level.
• Set aside escrow, deferred consideration and earn-out. That money exists, but it is not available at completion.
• Deduct the fees. M&A adviser, lawyers, tax adviser, auditor and notary.
• Deduct the taxes. Depending on whether you sell personally or through a company, and on the payment calendar.

The result is the cash available on completion day. That is the number you should compare across offers, and the only one that resembles what you will actually be able to do with your life the next morning.

What is the next step if you want to know what you would really take home?

Start by fixing the starting point, which is an enterprise value range for your company. You can get a first reference with the Capittal valuation calculator and then, with that number in front of you, subtract net debt, working capital, holdback, fees and taxes until you reach the cash at completion. If the distance between the headline and the cash surprises you, that gap is exactly the work to do before sitting down with a buyer.

At Capittal Transacciones we work on the journey from headline price to bank account within the confidential valuation we prepare for owners considering a sale. We are a mid-market M&A boutique operating in the approximate range of 3 to 250 million euros, with eight offices in Spain (Barcelona as headquarters, Madrid, Girona, Lleida, Tarragona, Palma, Zaragoza and Valencia) and we are part of the NRRO group. The partner handles each mandate directly, including the conversation about what you will really take home.

Keep reading

• Guide: every decision you face when selling your company
• What to do with the money after selling
• A valuation is not the sale price

Work out what you would actually keep: talk to Capittal