The information pack lands and the target looks perfect: growing sales, a neat EBITDA, loyal customers and a founder keen to retire. Price: a multiple of EBITDA, less the debt on the balance sheet. Six months after closing, the first letter from the tax authority arrives, followed by an employment claim, and the “neat” EBITDA has lost a third. The story is invented, but anyone who has worked on deals will recognise it.
EBITDA shrinks in the wash. Normalise it: an owner paying himself a token salary, rent paid to a related party below market, one-off income such as a grant, or expenses capitalised to flatter the P&L. At a six-times multiple, every €200,000 of adjustments moves the price by €1.2 million.
Debt that isn’t called debt. Deferred tax or social security payments, long-overdue suppliers, declared but unpaid dividends and probable litigation all come out of the buyer’s pocket. Agree a normal level of working capital too, or the seller may collect receivables early and leave you the unpaid suppliers.
Liabilities travel with the business. Buying shares means inheriting the company’s whole history, including tax years still open to inspection (generally four years from each filing deadline). Buying the business instead of the shares does not make you safe either: under Spanish law the successor in a business activity is jointly liable for its tax debts (a certificate of outstanding debts can limit this exposure), employees transfer with the business, and seller and buyer are jointly liable for three years for pre-transfer employment obligations.
Protect yourself in the contract: price adjustments, representations and warranties, a holdback or escrow, and a clear locked-box or completion-accounts mechanism. For larger deals, warranty and indemnity insurance can shift part of the risk to an insurer.
One Firm Auditores performs financial due diligence and valuations for buyers and sellers of companies in Spain. Talk to us before you sign.