The Challenge of Acquiring Trust-Structured SMEs in Australia As an investor and M&A practitioner looking at acquisitions across multiple sectors in Australia, one of the recurring challenges I encounter is that many SMEs are structured as trusts rather than private companies. This has major implications for how acquisitions can be structured and financed. Why So Many SMEs Are Structured as Trusts In Australia, it is very common for family-owned and privately held SMEs to operate through trust structures. This is largely due to: Tax efficiency: Trusts allow flexible distribution of income to beneficiaries, minimising tax; Asset protection: Separating legal ownership from beneficiaries and Succession planning: Easier intergenerational wealth transfer. Why You Can’t Simply Acquire a Trust Unlike a company, a trust is not a separate legal entity with shares to purchase. The trustee (often a Pty Ltd) legally owns the assets on behalf of the beneficiaries. You can buy the trustee company, but unless you also control the appointor rights under the trust deed, you don’t control the trust. This makes a conventional share acquisition impossible in many cases. Why Sellers Resist Converting to a Company Some businesses can be restructured into a Pty Ltd, but most sellers resist because of the tax consequences: Transferring assets from the trust to a company crystallises gains; Stamp Duty: Payable on property and other asset classes; Loss of tax flexibility: Trust distributions allow income splitting; companies do not. Implications for Deal Structuring For buyers, this presents a real challenge. Share purchases are generally cleaner because you acquire the history, contracts, and trading continuity of the business. With a trust, that option may not be available. Asset purchases are possible but require re-papering customer contracts, supplier agreements, and employee transfers — all of which create complexity. Can You Do an LBO with a Trust-Structured Business? Leveraged buyouts (LBOs) are harder with trusts. In an asset purchase, lenders are cautious because the acquiring entity is a newly formed company without trading history. While asset-based financing (against receivables, plant, and property) is still possible, cashflow lending is more difficult at day one. However, with the right structuring — often combining asset-backed debt with vendor finance — it can be done.

Any investors / buyers in the states of southern Californian, Texas, Florida NJ and IN. Great deals on contract, looking for serious investors and buyers. Please pm if interested

Any investors / buyers in the states of southern Californian, Texas, Florida NJ and IN. Great deals on contract, looking for serious investors and buyers. Please pm if interested

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