Considering Selling Your Company, In Hong Kong?

Michael MicheliniBlog, Corporate, HR and Legal0 Comments

Looking to sell your company in Hong Kong? The procedure is similar to any business location in the world – but since we went through it here there are some specifics we can share on the local parts.

Look For Synergy in the Companies First

Many entrepreneurs dream of exiting their company. But do they even know who would be a suitable suitor? Keeping a list of who you could work together with is key.

Then take it step by step. Are they your current customer, or can be a customer of yours? Try to make that business deal happen. Give them special terms in their order. Let them get to know your company a bit more too.

For us, we started offering our service to a few potential suitors. We kept the option open to either raise another round of money, or to exit the business and merge with a bigger company.

It is a tough thing to consider. And one you really need to keep quiet about. We told some of our team that we were considering some suitors, and it actually caused at least 1 person on the team to leave beforehand. He didn’t say his reasoning exactly, but after the discussion his reaction that we were going to make him have to work in that company for a certain amount of time if the deal went through.

So my advice to other founders who are looking to merge or sell their companies, you need to keep your mouth shut! For so many reasons, it can affect your team, your customers, your morale. There are high chances that these deals may not go through (a few got close but no cigar) and then how do you tell the team that it fell through?

Think About What you Have and what They Don’t Have

Selling a business is convincing the buyer you have value. How do you show value? There are a few ways, the customer base, the brand, the IP (trademark, patents), and the team are some big ones. Is the buyer a competitor? Do they want to just take you out of the market? That may have the biggest value of them all, as they will stand to get your clients plus all future clients you had in the marketplace.

For our deal, a lot of it was the team. Companies in Hong Kong and China are starving for developers, and are willing to buy up companies for the talent. There was also some skilled and connected marketers on the team to help as well. But not just the team, we had a mobile app developed that fit into their portfolio and we were able to synergies on the code and make effeciencies in development.

Doing It – Asset or Full Company sale

Then there is the technical “way” to do it. This seems to be a stumbling block for a lot of new entrepreneurs. Really it boils down to 2 ways: an asset sale or a full company sale. An asset sale is where the buyer takes the code, the team, the IP, the client base from the company they are acquiring, and then the owners in that company are left just with a “shell” of that company. The old owners are then left with this empty limited company that they will need to shut down (or maybe use for something in the future, depending on how the terms of the buyout went). This way gives more trouble to the seller, but limits the risk and liability of the buyer.

The other way, which is what people see as a buyout on TV, is when the buyer takes the whole limited company. They can then continue to operate that company under the limited, or move over the assets (and potential liabilities) to their main company.

For us, we did an asset sale. It was easier for both parties, as neither had much experience. Plus the buyer was a bit nervous if there was some unexpected debt or contracts signed in the company that no one knew about. We later then shut down our limited company after transferring everything out of the business, banks, credit cards, domain accounts, hosting, etc.

Making a Clear Contract

The tricky part is who makes the terms? A lot of people in Hong Kong don’t have too much experience in mergers and acquisitions for smaller startups, so a lot of times its left up to the founders. After a few dinner meetings to discuss the big parts of the deal (cash, timing, IP, team) – we drafted up an MOU (memorandum of understanding). Then add an attachment with various milestones and events that would happen at certain parts.

Really maybe there were mistakes in this- but in business its not like programming – there isn’t a hard and fast “code base” with hard rules. It is what the buyer and seller both agree on and accept.

Because both companies were Hong Kong companies, the legal part is pretty straight forward if there is a legal dispute later. In the contract we put that arbitration will be in Hong Kong, and then the judge would review this contract to help if it ever got to litigation.

But really, a contract is best used to make sure both buyer and seller are on the same “page”, and to keep disputes to a minimum later down the road. It is a framework and a set of rules for each to follow and reference to later if there is an issue.

Don’t rush Into It

Just like anything in life, good things come to those who have patience. Of course you can’t sit back and wait for a buyer or seller to come to you. Get to know your industry, and even your competitors. There can be some good synergies if 2 competitors join forces.

For us, it took about 5 to 6 months from first discussion to a signed agreement and announcement. How long does it typically take? Really, it depends what you call the start of the conversation. As I mentioned earlier, you need to always be networking as a founder of a company. Know everyone in your industry – think strategically – think win-win. While they may be a customer, supplier, or competitor now – would joining forces later make things better?