How to Sell Your Business to International Buyers

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 U.S. properties given the suppressed U.S. home values. Also benefited from U.S. real estate holdings as a means to safeguard money during the 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, 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.

Sell Your Business to International Buyers through E-2 Visa Eligibility

Over 90% of international buyers of small businesses seeking a U.S. visa will apply for the E-2 investor visa. Foreign nationals from over 80 countries are eligible for the E-2 investor visa by starting or buying a U.S. business. Although there is no minimum investment, most investors buy businesses ranging from $150,000 and $300,000 to satisfy the substantial investment requirement of the E-2 visa. The amount could be as low as $100,000, especially for Canadians and Australians where the U.S. consulate posts tend to be more accommodating to these nationalities. The Owners Earnings should be above $50,000 to meet the marginality requirement of the E-2 visa. Also, the business must have 2-3+ American workers (including W-2 employees or 1099 contractors).

Business Longevity

E-2 visas are generally issued for five years and can be renewed indefinitely as long as the above requirements are met.

Most E-2 visa investors prefer a business with a proven track record of earnings above $50,000 then 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.

Seller Training

For over 20 years, franchising has 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. This is to support the business for a four to twelve-month period.  Many international buyers will wait to move to the U.S. Normally 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., the seller can charge a more comprehensive operational support fee to ensure the business ownership transitions smoothly.

Business Purchase Conditioned on 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. 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 or having certainty that the transaction will happen. We recommend that the business seller incorporates a 10-20% non-refundable fee to cover legal. Also to cover 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. So then has to reapply. This can add months to the process. But often the rejection has nothing to do with the business itself. Sometimes is for immigration problems related to the E-2 visa petitioner.

Qualified Buyer

It is important to spend time on only the most qualified international prospects. Here are a few metrics leading business brokers to 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.)

We recommended engaging a local business broker if the business owner has an interest in attracting international buyers. Business brokers can save the seller immense time by only introducing the most serious inquiries.

Timeline

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 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 business’s financials’ order, 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. 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. This is regardless of whether the buyer is domestic or foreign.

Seller Financing

Confident sellers might consider partially financing the sale up to 30%. More than 30% can be problematic for the visa. Also can 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, reach out today to learn how you can further sell your business to international buyers and benefit from the Vetted Biz platform marketplace!