What Are My Methods Of A Takeover?

During a takeover, there are certain considerations you need to make when deciding on the method of takeover.

Each has it’s own pros and cons, and different timelines and processes.

So without further ado, here are 2 methods for taking over a preschool.

Option 1: Buying over entity

This would be the fastest option, and typically can be completed in as little as a month.

ECDA’s regulation regarding change of Director & Shareholder is to give ECDA and parents a 14-days notice, and this will also be a relatively smooth transition of operations.

After the Letter of Intent is accepted by the Seller, you will start the Due Diligence process.

Once done, we will execute a binding Sales & Purchase agreement.

The Seller will inform the landlord on the incoming Director & Shareholders, and parents and ECDA also needs to be informed.

After 14 days, the Seller will then change the Director & Shareholder structure to the Buyer, and operations can resume under the Buyer.

The bank signatory will also be changed over, to ensure that parent’s do not go through the hassle of changing the GIRO payment. Subsidy payments will also continue as per normal, without the need to inform ECDA.

PROS

– Quick and seamless
– Little/no attrition as nothing changes
– No need to novate/sign new lease with landlord
– No need to sign new employment contracts
– No need to setup new entity and bank accounts
– Takeover existing vendor contracts (enrichment, internet, utilities etc)

CONS:

– Buyer may be taking on hidden liabilities in the entity
– Books need to be assessed properly during due diligence stage
– No tax exemption

Option 2: Using new entity to takeover

This will be the cleaner option, but the process takes 3months+. 

ECDA’s regulation regarding re-licensing is a 3 month notice period to ECDA and parents, and thus it will take longer for the buyer to takeover operations.

After the Letter of Intent is accepted by the Seller, you will start the Due Diligence process.

Once done, we will execute a binding Sales & Purchase agreement.

The Seller will inform the landlord on the incoming Director & Shareholders, and parents and ECDA also needs to be informed. 

The new lease agreement or novation needs to be executed, and the seller would need to do the following:

– Centre needs to go through a re-licensing process, which takes 3 months
– Buyer needs to sign new employment contracts
– Buyer needs to sign vendor contracts (enrichment, internet, utilities etc)
– Parents need to change GIRO details upon completion
– Seller and Buyer need to conduct a Meet-The-Parents session to inform them of the changes, and to answer their questions

PROS:

– Tax benefit for new entity (tax exempt for 1st $100k for 3years)
– Clean accounts and books

CONS:

– Takes longer time for completion
– Employees may ask for higher salary
– Landlord may increase rental

SUMMARY