The Importance of Pre-Transaction Structuring in Business Sales
Why structure comes before value
In a competitive M&A market, valuation often dominates discussions, yet the structure of a transaction can have an equal, if not greater, impact on ultimate shareholder value. Pre-transaction structuring is the process of reviewing, simplifying and optimising a company’s ownership, operations and tax position before a sale process begins. Handled correctly, it ensures the deal proceeds smoothly, tax outcomes are optimised, and the acquirer’s due diligence process does not erode value through unforeseen adjustments.
Key drivers for pre-sale restructuring
1. Tax efficiency and shareholder outcomes
Without careful planning, shareholders can unintentionally trigger double taxation — once at company level and again on extraction of proceeds. Typical pre-sale strategies include:
Implementing a holding company to enable access to Substantial Shareholding Exemption (SSE);
Separating investment or non-core assets via a hive-out or demerger to ensure only trading assets are sold;
Restructuring share classes to facilitate Business Asset Disposal Relief (BADR) for qualifying shareholders;
Reviewing loan account and dividend positions to prevent disguised remuneration exposure on exit.
Advance planning also allows time to seek HMRC clearance, reducing uncertainty for both buyer and seller during negotiations.
2. Commercial readiness and operational clarity
Buyers will always assess the business through the lens of operational risk. Legacy shareholdings, unrelated subsidiaries, or intercompany balances can delay completion and affect buyer confidence. A clear and logical structure not only simplifies due diligence but often commands a higher multiple, reflecting reduced execution risk.
3. Legal and accounting alignment
Reorganisations often require coordination between accounting, legal and tax disciplines. Errors commonly arise where balance sheet restructuring is undertaken without ensuring Companies Act compliance (for example, in capital reductions or share-for-share exchanges). Integrating all advisors early avoids duplication of work and ensures that all relevant filings, SH03, SH06, RP04, and minutes are properly maintained.
Timing is critical
Restructuring too close to a transaction can undermine eligibility for reliefs such as BADR, which requires a two-year shareholding period. Similarly, group reorganisations undertaken without commercial purpose risk challenge under the Transactions in Securities (TiS) rules. Ideally, shareholders should begin the restructuring process 12–18 months before initiating a sale to allow for clearances, valuations and any capital movements to settle.
The Technical Takeaway
Effective pre-transaction structuring is about anticipating the due diligence process before it begins. By aligning tax, legal and commercial objectives in advance, shareholders not only protect value but often enhance it — delivering cleaner execution, reduced risk and optimal post-tax returns.