Selling a company with two years of negative EBITDA — valuation methods and risks of going solo

[raagiara]

I'm exploring a hypothetical sale of a company that has had negative EBITDA for the past two years. I've sold a business before and used a fairly standard approach: took the last two years of EBITDA, normalised for one-off adjustments, averaged them out, and applied an industry multiple. That process worked cleanly. This situation is different and I'm curious how others have approached it.

When the earnings base is negative, the EBITDA multiple method becomes meaningless or produces an absurd result. I've come across three alternatives: Revenue multiple, Net Asset Value (NAV), Discounted Cash Flow (DCF).
Is there a method HMRC leans toward for valuation purposes, or is it genuinely case-by-case? Would looking at a longer historical period (3–5 years) help if the business was profitable before, and is that a defensible approach with a buyer or HMRC?

The largest creditor in this scenario is an EU-registered company. Would it be legally and commercially straightforward to sell the business to them? Offsetting the sale proceeds against the outstanding debt rather than receiving cash? I'm aware this is sometimes done but I'd like to understand the practical and tax implications of structuring it that way, particularly in a cross-border (UK–EU) context.

The goal here is a fast and clean exit at a fair price, not chasing the maximum value. Are there structural or process shortcuts that make sense in that context? An asset sale versus a share sale, for example, or skipping a full Information Memorandum?

I know the standard advice is to engage a tax advisor and M&A solicitor. A question for those who've navigated a sale without professional help, or partially self-managed: what were the biggest risks you actually encountered? Like HMRC challenge on valuation (particularly for CGT purposes)? Perhaps deal structuring errors that aren't obvious until later? Also, anything in a cross-border sale that makes going solo particularly risky?

Thanks in advance for any experience or pointers.

 

[MikeJ]

Why would HMRC care how it was valued. As long as you pay the tax of course. If someone overpays, they get more money. If they underpay, you get less.

 

[Daybooks]

I'm exploring a hypothetical sale of a company that has had negative EBITDA for the past two years. I've sold a business before and used a fairly standard approach: took the last two years of EBITDA, normalised for one-off adjustments, averaged them out, and applied an industry multiple. That process worked cleanly. This situation is different and I'm curious how others have approached it.

When the earnings base is negative, the EBITDA multiple method becomes meaningless or produces an absurd result. I've come across three alternatives: Revenue multiple, Net Asset Value (NAV), Discounted Cash Flow (DCF).
Is there a method HMRC leans toward for valuation purposes, or is it genuinely case-by-case? Would looking at a longer historical period (3–5 years) help if the business was profitable before, and is that a defensible approach with a buyer or HMRC?

The largest creditor in this scenario is an EU-registered company. Would it be legally and commercially straightforward to sell the business to them? Offsetting the sale proceeds against the outstanding debt rather than receiving cash? I'm aware this is sometimes done but I'd like to understand the practical and tax implications of structuring it that way, particularly in a cross-border (UK–EU) context.

The goal here is a fast and clean exit at a fair price, not chasing the maximum value. Are there structural or process shortcuts that make sense in that context? An asset sale versus a share sale, for example, or skipping a full Information Memorandum?

I know the standard advice is to engage a tax advisor and M&A solicitor. A question for those who've navigated a sale without professional help, or partially self-managed: what were the biggest risks you actually encountered? Like HMRC challenge on valuation (particularly for CGT purposes)? Perhaps deal structuring errors that aren't obvious until later? Also, anything in a cross-border sale that makes going solo particularly risky?

Thanks in advance for any experience or pointers.

In your hypothetical sale you might want to consider that however the hypothetical seller or hypothetical buyer determine their hypothetical price at the end of the day you need a willing buyer and a willing seller, otherwise it will not happen. Hypothetically of course; perhaps!

In other words you can use whatever multipliers or valuation price you like. Nothing prevents the sale to an existing creditor; you simply agree a price taking into account any liabilities you see fit.

For what legal purpose do you think HMRC could question a valuation? What do you think the courts would tell them?

I might not have mentioned before but a willing buyer and a willing seller at an agreed price is key.

 

[numbersrule]

Mutual Assistance in the Recovery of Debt (MARD) are international agreements that enable foreign Tax Authorities to sieze Assets to pay Tax Bills incurred and due in the originating country. There is nothing more certain than a Tax Bill.

If your mention of purchase by creditor is merely for them to extract what they can, break it up and wind it down, then what's stopping you from doing that? The answer to that question should tell you all you need to know about how difficult the sales pitch to the EU creditor will be.

Alternatively, in the continue trading scenario, it goes without saying that no buyer would wish to see losses continue too far into the future. Therefore the buyer would need to be able to see a route to profitability.

Can you see a route to profitability?

If yes, what does that tell you about where to look for buyers?
And what does it tell you about the cost of the route to profitability? And therefore what discount the buyer would expect?

If no, then how do you expect to sell?

 

[Paul Kelly ICHYB]

I've come across three alternatives: Revenue multiple, Net Asset Value (NAV), Discounted Cash Flow (DCF).

You've missed one - what the potential buyer think it is worth!

Is there a method HMRC leans toward for valuation purposes,

Why would HMRC care, unless there is an underlying issue lile fraud?

 

[davidleo7557]

I'm exploring a hypothetical sale of a company that has had negative EBITDA for the past two years. I've sold a business before and used a fairly standard approach: took the last two years of EBITDA, normalised for one-off adjustments, averaged them out, and applied an industry multiple. That process worked cleanly. This situation is different and I'm curious how others have approached it.

When the earnings base is negative, the EBITDA multiple method becomes meaningless or produces an absurd result. I've come across three alternatives: Revenue multiple, Net Asset Value (NAV), Discounted Cash Flow (DCF).
Is there a method HMRC leans toward for valuation purposes, or is it genuinely case-by-case? Would looking at a longer historical period (3–5 years) help if the business was profitable before, and is that a defensible approach with a buyer or HMRC?

The largest creditor in this scenario is an EU-registered company. Would it be legally and commercially straightforward to sell the business to them? Offsetting the sale proceeds against the outstanding debt rather than receiving cash? I'm aware this is sometimes done but I'd like to understand the practical and tax implications of structuring it that way, particularly in a cross-border (UK–EU) context.

The goal here is a fast and clean exit at a fair price, not chasing the maximum value. Are there structural or process shortcuts that make sense in that context? An asset sale versus a share sale, for example, or skipping a full Information Memorandum?

I know the standard advice is to engage a tax advisor and M&A solicitor. A question for those who've navigated a sale without professional help, or partially self-managed: what were the biggest risks you actually encountered? Like HMRC challenge on valuation (particularly for CGT purposes)? Perhaps deal structuring errors that aren't obvious until later? Also, anything in a cross-border sale that makes going solo particularly risky?

Thanks in advance for any experience or pointers.

HMRC doesn’t really “prefer” a single method — it’s all about market value on a reasonable basis, case by case.

With negative EBITDA, buyers and HMRC usually move away from multiples and look at:

• Asset/NAV basis (common for loss-making businesses)
• Revenue multiples (only if there’s clear future growth)
• DCF (but only if forecasts are solid and defensible)

Using 3–5 years can help if there’s a clear prior profitable track record, but you’ll need a strong explanation for the drop-off.

Selling to a creditor is possible, but it’s more like a debt restructuring than a standard sale, and cross-border (UK–EU) adds tax and legal complexity. The main risk in going DIY is getting the structure wrong and triggering unintended tax consequences later.