Buying and Selling a Business in Cyprus

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Buying and Selling a Business in Cyprus

Both a prospective buyer and a seller should always obtain tax and legal advice from qualified professionals prior to closing a business sale.

Cyprus law is based on English law; this simplifies matters from the legal point of view for those accustomed to the Anglo-Saxon legal system and intending to transfer a UK-based business to Cyprus. 

As in most countries, businesses in Cyprus may be segmented as follows:

1. Listed Companies
2. Non-listed Medium to Large Companies
3. Small Enterprises (less than €10 million turnover)
4. Micro Enterprises (less than €2 million turnover)

Note: Listed Companies and Medium-to-Large Non-listed Companies are outside the scope of this page. The focus is on the purchase of Small and Micro Enterprises which account for over 98 percent of businesses in Cyprus.

Buying a Micro or Small Enterprises in Cyprus

The Micro to Small Enterprise segment of the market can be differentiated according to the motives and objectives of a business buyer; this is important as it determines the type of approach towards buying (or selling) a business.

Corporate Acquisition

In this case, the buyer is a corporation and has a strategic interest to acquire a specific business.

• If the buyer is a foreign company the acquisition may be a convenient way to establish itself in the Cyprus market or gain a corporate presence in the EU
• A local corporate buyer may simply aim to increase local market share, geographical spread, enlarge its product line, acquire know-how or a brand name
• As for the seller, the motivation may be to acquire a strong partner (if the sale is for a majority but not 100 percent of the company) or simply to cash out, if sold in an outright sale

Because Cyprus is a small place, it is not difficult for local corporate buyers and sellers to find each other. Although sometimes an intermediary may be employed to source likely targets, usually the intermediary's role is to ensure confidentiality in the initial stages of approaching pre-determined targets.

Such intermediaries are usually financial services firms which handle mergers and acquisitions, though assistance may be found through accountants, law firms and the corporate finance departments of big audit firms. If the transaction is big enough, it could interest the investment banking or corporate finance subsidiaries of the local banks, although their focus is mainly on listed companies.

With very few exceptions, the above intermediaries are geared towards offering services at a fee rather than on a commission basis. Therefore, the client (whether buyer or seller) will need to make a significant outlay regardless of the outcome.

Personal/lifestyle businesses

The most common motivation for acquiring a business is to secure a source of personal income as owner/manager, while satisfying lifestyle expectations at the same time.

The decision to buy (and sometimes to sell) is not based exclusively on financial criteria; location and general ambiance, manageable business size, experience and skills needed to manage the business, working hours and a host of other subjective elements come into play. For all these reasons, matchmaking between potential buyers of a lifestyle business and sellers is a more difficult proposition; the business has to satisfy much more than just financial or investment criteria.

Passive investments

The passive investment buyer sees the business as just another investment and is interested only in the income this investment will generate. They are usually affluent and wish to diversify from mainstream investments, such as stocks and bonds. They will probably be an "absentee owner".

Because the owner will have to pay a manager to run the business, profitability has to be much higher than a lifestyle business.

The business must be easy to control and monitor through financial audits and other control systems on purchases, expenses and receipts. Therefore, all cash businesses such as restaurants, night-clubs, cafeterias, should be avoided.

Provided the above two criteria are met, a passive-investor type of buyer has a much wider range of businesses to choose from than a lifestyle business type of buyer.

The Market for Businesses for Sale

The local market for business sales is still undeveloped. Considering that there are over 60,000 Micro to Small Enterprises in Cyprus, the number of business sales should range around 6,000 annually. There are no official statistics, but indications are that the number is below 1,000.

The main reasons are cultural; Cypriots usually hold on to their businesses until they are forced to sell for one of three reasons:

1. Retirement, coupled with lack of succession
2. Illness
3. Financial problems

In addition to that, most Cypriots prefer to establish their own business from scratch, instead of buying someone else's business.

The Cyprus expatriate market, on the other hand, is much more active due to increased mobility and familiarity with business sales. 

This market consists mainly of:

• EU nationals (mainly British) who are either moving to Cyprus and looking for a suitable business to buy, of going back to their home country and need to sell their business
• Cypriots who wish to repatriate, mainly from the UK, South Africa, Australia or USA; or who have repatriated recently and for some reason wish to emigrate again
• Other nationalities (mainly Russians) who wish to own a business in Cyprus in addition to a home

However, although very active, the expatriate market constitutes less than 3 percent of the total Cyprus market, (that is, just under 2,000 businesses). This figure excludes the thousands of offshore companies which use Cyprus as their base, but have no operations within Cyprus.

How to Find a Business for Sale

The low transaction volume explains why, unlike the property market, there are very few local intermediaries who specialise in bringing business buyer and seller together. Therefore, most businesses for sale are promoted without resorting to a specialist intermediary such as a business broker.

Cypriots usually source a buyer or seller by word-of-mouth, or ask their accountant to assist with finding buyers or sellers. Other popular means of promotion are the local press classifieds, of which there are several in Greek, English and Russian. Although many of these have a separate section for businesses-for-sale, none of them specialise in business sales. Websites with online classifieds are beginning to attract traffic, but most Cypriots are unlikely to look for a business to buy on the web.

In general, Cyprus is a difficult market either to buy or sell a business. For buyers, the problem is that most businesses for sale are not advertised anywhere; and for sellers, the problem is that there are no specialised print or web media through which they can promote a business sale.

Advisors

There is no shortage of highly qualified legal advisors and accountants in Cyprus, however advisors should be carefully selected based on prior experience with business transfers. Again, the size of the market is such that it does not allow most professionals to specialise in a particular area.

Regulation and Licencing

Buying a business which is engaged in lawful commercial activity is not a regulated market in Cyprus, but there are a few notable exceptions:

1. Most types of financial services companies (such as brokers, banks, investment funds, insurance companies)
   • Banks, Foreign Bank Subsidiaries, Branches and Representative Offices are regulated by the Central Bank of Cyprus 
   • Private Collective Investment Schemes (up to 100 investors) are regulated by the Central Bank of Cyprus 
   • Public Collective Investment Schemes (over 100 investors), UCITS, Brokers and Investment Managers are regulated by the Cyprus Securities & Exchange Commission 
   • Insurance Undertakings are regulated by the Ministry of Finance, Insurance Companies Control Service 
2. Companies whose main purpose is to acquire and maintain ownership in real estate assets (regulation applicable only to non-EU citizens; there are no restrictions on the acquisition of real estate by EU citizens or companies domiciled in the EU)

There is ongoing controversy as to the requirements for allowing non-Cypriot companies or individuals to engage in certain services or trades that require a local license, such as real estate agents, building contractors, engineers, architects, doctors, lawyers, education professionals. In each case, the approach of the relevant regulatory or licensing authorities varies, while the treatment is different for EU and non-EU citizens. Therefore, the first advice to anyone wishing to acquire a company in the professional services sector is to inquire with the appropriate licensing or regulatory authority.

Information provided by DealMasters DM Ltd., Business Sales Specialists
Mailing Address: POB 28702, Akropolis, CY-2082 Nicosia, Cyprus
Tel (from abroad): +357 22 255 160 Fax: +357 22 255 180
Website / e-mail
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