Q. The listed-company that wants to buy my business is keen to offer shares rather than cash. But the stock market has been depressed and I am unsure how easy it would be to sell my shares. Is there any way to mitigate the risk of a paper-for-paper deal or should I just insist on cash? Also, as the vendor, can I really do a thorough due diligence exercise on my potential acquirer?

Andy Mintern writes:

Paper for paper is no different an investment decision than buying anything else.  It is vital that you fully understand the stability and future prospects of the acquiring company and it’s reasonable to ask about the business and its management as you are effectively investing in it.

Other questions to ask yourself include the liquidity of the stock – exactly how would you sell the acquiring company’s shares if you wanted to? If they are listed on the main market, there will usually be a route to sell, but it will depend on the proportion of the combined business you end up owning. Shares listed on AIM or PLUS, however, may be hard to sell if there’s no demand for the stock.

You may also wish to consider the proportion of the combined business you would own – or the level of control you would be able to exercise on the business – and whether you would like to have any further involvement. For example, would they offer you a position on the board?

The fact that the market is depressed will have an effect on the valuation of both the acquiring company, but also, potentially, on the value of the business you are selling. If the approach has been from a competitor, have you tested the market to see whether other buyers would be interested in acquiring your business? A little competition could give you confidence in the value you have been offered and whether a similar level of consideration could be achieved for cash.

If you have cash in the business, you could consider taking this out prior to the sale to ensure that part of your value is ‘realised’. Options to consider include dividend, salary or more tax-effective routes, such as a contribution to a personal pension plan.

Andy Mintern is a director of Secantor, the national network of financial directors, who work part-time for small to medium-sized companies. www.secantor.com