Share deal

A share deal is the sale of the shares in the company that owns the hotel: the property, the business, or both. The buyer acquires the company with its assets and liabilities. The hotel itself does not change legal owner: control of the company changes hands.

In a transaction

The company keeps its lease, contracts, permits and employees. That continuity simplifies the deal, with one caveat: change of control clauses. Franchise or management agreements, bank facilities and sometimes the lease may require the counterparty’s consent. These clauses drive the timetable and should be reviewed before the sale is launched.

The share price starts from the value of the hotel, less net debt, adjusted for working capital. Two mechanisms are used:

• completion accounts: the price is adjusted at completion on the basis of accounts drawn up at that date.
• locked box: the price is fixed on an earlier balance sheet, and the seller undertakes not to extract value until completion.

Because the buyer takes on the liabilities, it will ask for a warranty and indemnity package, the French garantie d’actif et de passif, whose cap, threshold and duration are negotiated.

Latent tax

The company keeps the historical tax base of its assets: a share deal does not allow them to be stepped up. The latent gain would be taxed if the company later sold its assets, and how far that latent tax is reflected in the price is a matter for negotiation. Transfer duties depend in particular on the nature of the company, notably whether it is predominantly a property company. These points should be settled with the notaire and the tax adviser at the date of the transaction.

The share deal is the counterpart of the asset deal, where the buyer acquires the assets directly.

To choose between property, business and shares: selling a hotel.