Looking to sell your business to international buyers?
For over a decade, international investors have driven real estate prices in major U.S. cities including Los Angeles, New York, and Miami. After the 2009 recession, international buyers started purchasing more and more U.S. properties given the suppressed U.S. home values compared to the 2006 highs.
Foreign buyers also benefited from U.S. real estate holdings as a means to safeguard their money during political, economic, and/or social upheaval in their home country. In Florida alone, more than 20 percent of real estate buyers are foreigners.
California and Texas are the next two most popular states for international buyers of real estate. It should come as no surprise that many of the same international real estate buyers are currently buying businesses in Florida, California, and Texas.
International buyers are often willing to purchase small businesses of up to $300,000 with cash. As opposed to U.S. business buyers, a highlight of investing in the U.S. for foreign investors, is that they benefit from diversifying their financial assets in the U.S. and by becoming eligible for a U.S. visa (such as the E-2 investor visa).
International buyers have different priorities when evaluating businesses including visa eligibility, business longevity / stability, and seller training. Other items for the American business owner to consider are: E-2 visa purchase contingency, qualifying the buyer, timeline, and seller financing.
The article below will address in-depth some of the factors listed above to be taken into consideration when looking to attract foreign capital by selling your business to international investors.
7 Steps To Sell Your Business To Internal Buyers
1. Sell Your Business to International Buyers through E-2 Visa Eligibility
One of the strongest ways to sell your business to foreign investors is by attracting E-2 Visa investors. Over 90% of international buyers of small businesses seeking a U.S. visa will apply for the E-2 Investor Visa where, foreign nationals from over 80 countries are eligible to apply by starting or buying a U.S. business.
Although there is no minimum investment amount, most investors are willing to buy businesses ranging from $150,000 and $300,000 in order to satisfy the substantial investment requirement of the E-2 visa.
That being said, the initial investment amount could also be as low as $100,000 – especially for Canadians and Australians where U.S. consulate posts tend to be more accommodating to these nationalities.
Additionally, in order to meet the marginality requirement for the E-2 visa, it is important that the business’ Owners Earnings be above $50,000 and that the business has 2-3+ American workers (including W-2 employees or 1099 contractors).
2. Business Longevity
An important factor to consider, especially when making your business attractive to E-2 Visa investors is your business’ longevity. E-2 visas are generally issued for five years and can be renewed indefinitely as long as the above requirements are met.
That said, most E-2 visa investors prefer a business with a proven track record of earnings above $50,000 than the prospect of earning significantly more but at a higher risk.
If the business decreases in size (by employee count or earnings), the E-2 visa might not be renewed and the family will have to return to their home country, hence why E-2 investors are more likely to look at a business’ stability rather than the time frame for their return on investment.
3. Seller Training
Providing operational support especially during the first 12 months following the business’ sale, is also a plus. For over 20 years, franchising has a been a popular route for E-2 visa investors given the initial and ongoing training provided by the franchisor.
E-2 visa business buyers may never have owned and operated their own business nor conducted business in the U.S. When you sell your business to international buyers, you should consider a fixed consulting fee to support the business for a four to twelve-month period.
Many international buyers will wait to move to the U.S. until July or August to ensure their children enroll in schools at the beginning of the school year.
Depending on when the investor plans to move to the U.S., a more comprehensive operational support fee can be charged by the seller to ensure the business ownership transitions smoothly.
4. Business Purchase Conditioned on E-2 Visa Approval
Another factor to consider, is including a bylaw in your business’ sales agreement that takes into account the business’ purchase being conditioned on the buyer’s E-2 Visa Approval.
The majority of the E-2 visa investors and their advisors (including immigration attorneys and accountants), will negotiate the business purchase to be conditioned on the E-2 visa approval in order to mitigate any risk of the investor being denied their visa and losing a large sum of money.
Generally, this is done through escrowing the purchase funds with the ONLY condition being the E-2 visa approval to release the funds to the seller. This can be problematic for business owners interested in selling their business quickly or having more certainty that the transaction will happen.
We recommend that the business seller incorporates a 10-20% non-refundable fee to cover legal and other expenses related to the business purchase should the E-2 visa not be issued.
Although the final denial rate is only around 10%, many E-2 visa investors are rejected during the first interview and have to reapply. This can add months to the process and often the rejection has nothing to do with the business itself but rather immigration problems related to the E-2 visa petitioner.
Nevertheless, E-2 Visa Investors are more likely to invest in a business that recognizes and is willing to adapt to their particular conditions.
5. Qualified Buyer
Beyond making your business appealing to international investors, it is also important to ensure you spend time on only the most qualified international prospects. Below are a few metrics leading business brokers use to qualify prospective foreign business buyers:
- Owns property in the U.S.
- Has engaged an immigration attorney
- Represented by a business consultant / broker
- Has an accountant to support the business due diligence
- Has a set date when he / she would like to move to the U.S.
- 100% of the business asking price is liquid (in cash, stock, etc.)
It is highly recommended to engage a local business broker if the business owner is interested in attracting international buyers. Business brokers can save the seller immense time by only introducing the most serious inquiries.
6. Timeline
Additionally, it is important for business owners to only entertain qualified buyers to limit the time needed to sell their business.
For qualified buyers that meet the majority of the above metrics, the process should take three to six months from when the initial contact is made to when the E-2 visa is issued.
The deal negotiation, due diligence, and finalization should take anywhere from one to three months. This variance depends on how motivated the buyer is, the order of the business’ financials, and how thorough (and / or delayed) their advisors are in supporting the buyer’s negotiation and due diligence.
However, the biggest variable is processing times at U.S. consulates and embassies around the world. Most consulates require 2-4 weeks to schedule the E-2 visa interview where embassies in Stockholm and Rome currently take more than three months!
Even though the process might take six months, on average, it takes five to nine months to sell a business regardless of whether the buyer is domestic or foreign.
7. Seller Financing
Confident sellers might consider partially financing the sell up to 30% (more than 30% can be problematic for the visa) and stay on to support the management for the first year.
The seller financing terms can be conditioned on maintaining sales and earnings at a certain threshold.
With a seller financing structure, the business sale price can be elevated and / or limit negotiating from bringing the price below the business asking price.
Conclusion
At a time when many prospective American buyers are tight on cash and financing can be difficult, international buyers present a welcomed opportunity for business owners to exit their businesses at a high valuation.
For business owners interested in selling / marketing their business to international buyers, we hope the guide above has been helpful in providing a structured guideline on how to best leverage this selling opportunity to the foreign market!
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Author: Elizabeth Tran is a business development associate at Vetted Biz.
