Purchase share of Ltd company

I

infinity

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This area is completely new to me so the questions are going to be very basic!! I work for a Limited Company, this company is likely to be sold in the next 12 months or so. I am interested in buying a share of the company.

I am going to get some professional advice on this - but I am just using this forum to get some ideas to start the ball rolling. Any advice would be appreciated.

Now to the questions....

How does one go about getting a small company valued ?

How do banks loan money for this type of scenario? With a mortgage the bank hold the deeds until you have your house paid for. Does something similar happen with the company, or do I have to use my home as collateral ?

What type of interest rates / terms do these type of loans incur ?

If, for example, a €250,000 loan buys me 25% of the company. The repayments on this loan (10 years / 8% ?) will be in the region of €37,000 per annum. Am I then entitled to 25% of the profits of the company ? How are these profits paid - through PAYE ?
Is the interest on the loan tax deductable ? (interest of €20k in first year of loan)

I have 101 other questions but these basic ones will do me for now!!
Many thanks
 
I would suggest getting 1-to-1 professional advice - you will need a shareholders agreement drawn up regardless.

If you own 25% of the company, you would get 25% of the profits paid as an annual dividend - should the boards of directors decide to pay a dividend (no guarantee).

I wouldn't imagine any interest would be tax deductible.

As for valuation - you can work off multiples of earnings - ie: what is the company's current profitability, and work off a multiple of that....

From what you are saying, you are valuing the business a 1M?
 
Boskonay, I was just plucking round figures from the air. The valuation of the company needs to be in line with my capacity to repay the loan - which in turn must be in line with any annual dividend paid !!

I'm sure any other investor in the company is going to take the same approach - there has to be some return on the investment or its not worth making.

The company was set up by the current owner many years ago. Obviously, he doesn't have any loans to pay back in relation to the company at this stage. He pays himself a wage and the profits are ploughed back into the company.

Who do you recommend for professional advice? Solicitor / Bank ? I have gone to a general financial and investment advisor but he was very vague on how to value the company. It was only an initial meeting - but I need to approach someone who specialises in this area. Do the likes of ISME provide any assistance in this area ?
 
boskonay said:
As for valuation - you can work off multiples of earnings - ie: what is the company's current profitability, and work off a multiple of that....
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Profits margins have been low in recent years. There have been many reasons for that such as: rapid growth in workforce, R & D for new product lines.

When you say multiples - who decides the multiples? I have made a few attempts to get advice on valuations but they vary by huge factors.
 
It's impossible to value a company without knowing much more about it. There is no rule or equation. For example what does the company own, what does it owe, what market share does it have, how mature is it’s market, profit margin, redundancy liability, upcoming costs or regulatory changes that may have an impact, etc, etc, etc. You need to start with a good accountant who has done this before. Be prepared to pay top € for this service.
 
Purple said:
You need to start with a good accountant who has done this before. Be prepared to pay top € for this service.
Click to expand...

I think thats the tricky bit! I would appreciate anyone's experience of this. I have approached a particular firm about getting a valuation but it their fee was based on a % of the valuation (or a minumum fee of €10k). It would've been in their interest to value it as much as possible!!

If I can find a reputable company / accountant to do the valuation that is agreeable to both the current owner and me I don't mind paying the money. Don't really want to end up having to get 2 separate valuations if possible.

I don't want to divulge too many details here - sorry about vagueness!!
 
infinity said:
I think thats the tricky bit! I would appreciate anyone's experience of this. I have approached a particular firm about getting a valuation but it their fee was based on a % of the valuation (or a minumum fee of €10k). It would've been in their interest to value it as much as possible!!

If I can find a reputable company / accountant to do the valuation that is agreeable to both the current owner and me I don't mind paying the money. Don't really want to end up having to get 2 separate valuations if possible.

I don't want to divulge too many details here - sorry about vagueness!!
Click to expand...

In the normal course of events both sides would have a valuation and meet somewhere in the middle, i recently acted for an MBO team. They had a financial adviser assist them and I think that the guy who was selling his shares basically told them to come up with a good offer based on a proper investigation of the accounts. I'll check the basis for the valuation tomorrow but don't think you'll ever find two accountants to come up with the same figure or even method!
 
A few comments...

Valuation is whatever is agreed between buyer and seller, using whatever calculation they each choose to use (and they may work with completely different ones). There is no "standard" way of doing this.

The two stand out comments for me from the key post are:

"Buying a minority stake in a company is dangerous"

and

"A bank will not take shares in a private company as security"

This second statement will tell you exactly how much banks value minority stake shares in private companies (zero, which is a nice simple way of calculating value).

The first should tell you something about how much value you should put on them.

Sorry not to be more constructive.....
 
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