Investors tend to require a formal valuation of a company by a third party, as it confirms the real state of the business and its potential as an investment or buyout. To start the buyout procedure, business owners must prepare: a) Audited financial statements for a minimum of two years prior to the negotiation period; b) A draft financial statement (unaudited) for the year or two years prior to the buyout process; c) An investment memorandum outlining the basic company facts and providing company analysis, including its financial condition; d) A forward-looking business plan (if available); e) A non-disclosure agreement (NDA); f) A report from the auditors showing the state of the company regarding payments due to the tax authorities; g) Valid licences and governmental approvals; h) Necessary approvals or certificates that are not yet acquired (if any); i) Official company certificates such as certificate of incorporation, current shareholders, director, secretary etc; j) Official bank documents showing the balance of accounts and the existence of any bank loans or other financial obligations; k) Contracts with suppliers, main customers, key employees and governmental authorities; l) Titles of ownership of any assets belonging to the firm such as buildings, vehicles, etc.
Professional assistance is recommended both for legal as well as accounting purposes when preparing to exit your business. You will be in a stronger position regarding negotiations and due diligence. Professional advice can also assist in settling obligations such as tax payments which are inherent to the buyout process. An auditing firm is the only mandatory professional service if you are looking to exit your business. You can find one in the list provided by the Institute of Certified Public Accountants of Cyprus. They will perform the closure or buyout process and report to the government. The following types of companies, in particular, are advised to hire professional advisors in the buyout or closure process: a) Companies with assets; b) Companies requiring a variety of licences for their operations; c) Distressed companies with obligations towards the private and/or public sector; d) Companies with a yearly turnover exceeding €500,000; e) Companies with export activities; f) Companies with a buyout value exceeding €2 million.
Hiring a reputable advisory firm to evaluate your company before selling it is the preferred practice, as it greatly facilitates the process of buyout negotiations. The valuation methods are set out below, arranged from the most to least commonly used: a) Discounted Cash Flows (DCF): A method based on cash flow projections, i.e. an estimation of how much money a firm will be able to generate in the future; b) Precedent Transaction Analysis: A method in which the price of similar companies purchased in the past is used as an indicator of a company’s value. It creates an estimate of what a share of stock would be worth when acquired; c) Comparable Company Analysis (CCA): A method that uses the metrics of other businesses of similar size in the same industry. It operates under the assumption that similar companies will have similar valuation multiples, such as EV/EBITDA (Enterprise Value / Earnings before interest, taxes, depreciation and amortization). Depending on the industry, more than one method can be used; the results are then compared to set the final investment value / amount.
The Registrar of Companies and Official Receiver sets the procedure for changes to company ownership. The following regimes can be applied: a) Transfer of shares (form HE57); b) Essay (report) for the concession of shares (form HE12); c) Change of share capital (form HE16); d) Growth of share capital (form HE14); e) Request to increase number of shareholders (form HE15); f) Reduction of share capital.
This decision will greatly depend on the financial condition of your business. In practical terms, companies with positive cash flows and no liabilities towards the government are most likely to pursue a buyout, unless suitable investors cannot be found to carry out the acquisition. Businesses operating within certain sectors related to the public interest, for example energy (especially renewable energy) companies, can only be acquired by investors who are government approved. Business owners must check whether the sale of their business is in any way restricted by government regulations. Closing a company comes with certain costs, including finalizing the company financial statements, auditing and financial reporting as well as paying outstanding amounts to governmental authorities such as the Tax Department. For more information on the closure / sale of a company, see the Registrar of Companies and Official Receiver.
A company may cease its operations either via voluntary strike off, or as a result of cross-border merger, or by transfer of its seat outside the Republic, or via involuntary strike off initiated by the Registrar of Companies for not complying with its statutory obligations under the Companies Law (e.g. filing of annual reports). Following a strike off from the register, a company may still be restored. The relevant procedures can be found and completed below:
A partnership may cease its operations either through voluntary strike off or involuntary strike off by the Registrar of Companies, if there is reasonable cause to believe that the partnership is not carrying out its business activities, or via dissolution by a court. The relevant procedures can be found and completed below: a) Voluntary strike off of a partnership; b) Involuntary strike off of a partnership.
A business name may cease its operation either through notifying the Registrar of Companies or due to its involuntary strike off by the Registrar of Companies, if there is reasonable cause to believe that the business name does not carry out business activities. The relevant procedures can be found and completed below: a) Voluntary striking off of a business name; b) Involuntary striking off of a business name.
Financial service companies, business consulting firms as well as legal advisors can all provide professional advice if you’re looking to sell your business. Once your business valuation is ready, you should develop a teaser (blind profile presentation), an investment memorandum and, if applicable, a detailed business plan. The teaser should then be disseminated across business advisory firms. If a match is found in terms of a potential buyer, you can enter in an exclusive or non-exclusive business transaction engagement with them to start the negotiation process. Both advisors and potential investors must sign a non-disclosure agreement (NDA) to safeguard sensitive company information, including employees’ personal data.
Skilled and trained staff are a valuable aspect of the company, and should be given the option to stay on when the company is bought out. If you’re in the process of a potential buyout, you should include provisions that protect the positions of the company’s existing personnel. Should the buyout result in job losses (e.g. if some jobs will be eliminated through digitisation) then you should try cover the employees who are likely to be out of a job through a redundancy scheme. Strong recommendation letters can also increase their chances of finding new jobs.
A company is considered bankrupt if it fails to liquidate its debt within a specific timespan. A liquidator is appointed to use the assets of the company to pay its debts. The liquidation of a company can be voluntary or compulsory. The bankruptcy procedure A creditor may ask a Cypriot court to initiate bankruptcy proceedings: for compulsory bankruptcy proceedings, the debt must exceed €854; for voluntary bankruptcy proceedings, the amount must exceed €8,600. Voluntary bankruptcy The court will evaluate the evidence and issue a receiving order or an interim order. The receiving order will appoint a trustee, otherwise known as an Official Receiver, who will assess and then distribute the assets among creditors. The receiving order will be published in two newspapers and in the Gazette. The debtor must give the trustee details about its debts and creditors. These details must be provided within seven days to the creditor, or three days if the debtor filed the petition themselves. The Official Receiver will establish a general meeting with the creditors within 14 days and appoint a trustee to coordinate the bankruptcy procedure, but can also allow the debtor to reach an agreement with the creditor.
There are two types of liquidation in the Cypriot corporate system: a) Voluntary liquidation; b) Liquidation by a court. Voluntary liquidation A company may proceed with voluntary liquidation if:
If your company is facing insolvency or bankruptcy, you need to hire a consultancy firm recommended by the Insolvency Service. Financial services providers can also support you in bankruptcy procedures and advise you on your options.