Insights ·
How JV and share-swap structures work for founder-led brokerages
A clean cash sale is rarely the right answer when the founder is the business. The alternatives, and where each one breaks.
By Alberto Roberts, Managing Director, Harbourline Partners
Most of the operators a regional group will want in the Philippines are founder-led, and in a founder-led brokerage the founder is a large part of what is being bought: the developer relationships, the agents' loyalty, the instinct for which launch will move. A clean cash sale hands the buyer the keys and hands the founder a reason to leave. So most of the conversations I expect to be part of will end up somewhere between a sale and a partnership. This is a plain description of the two structures that come up most, and where each one breaks. It is not legal or tax advice; Philippine and Singapore counsel are needed for anything real.
The joint venture
The buyer and the founder form a new company. The founder contributes the operating business, or part of it; the buyer contributes cash, technology, or access to its own audience. Each holds shares in proportion to what was contributed, with the ratio agreed up front and, often, a mechanism for the buyer to increase its stake later at a price tied to performance.
The advantage is that nobody has to agree on a final valuation on day one. The disadvantage is governance. A joint venture needs a shareholders' agreement that settles who appoints the managing director, which decisions need both sides, what happens if one side wants out, and how a deadlock is broken. Founders tend to skim this part. It is the part that matters most three years in.
There is a Philippine layer on top. Real estate service is a licensed profession under the Real Estate Service Act, and there are constitutional and statutory limits on foreign participation in parts of the property sector. In practice that means the operating company that holds the broker licences and does the regulated work is usually structured with Filipino control, and the foreign group's economic interest sits at a level that counsel has confirmed is permitted. Get this opinion before the term sheet, not after.
The share swap
Instead of cash, the founder exchanges some or all of the shares in the brokerage for shares in the buyer, or in a holding company the buyer controls. The founder becomes a shareholder in something larger and keeps an interest in the combined business; the buyer pays in paper rather than cash and gets a founder whose wealth now rises and falls with the group.
The mechanics turn on the exchange ratio, which is a valuation of both companies expressed as one number, and on what the founder can do with the shares received. Expect a lock-up, a right for the buyer to buy the shares back if the founder leaves early, and sometimes a put option letting the founder sell down at a formula price after a set period. If the buyer's shares are not listed, the founder should ask hard questions about how, and when, they turn into money.
Share swaps also raise tax questions in both jurisdictions that depend on the exact structure. I do not give figures here because the answer changes with the facts. Model it with advisers before the number is agreed, not after.
The hybrids that actually get signed
In practice the two get combined. A common shape is cash for part of the founder's stake, shares in the buyer for another part, and a joint venture agreement that governs the operating company for a fixed period with a call option for the buyer at the end. The founder gets some money now, some upside later and a defined exit. The buyer gets control of the things it cares about, a founder who is motivated, and a path to full ownership if the business performs.
Whatever the shape, the document that decides whether the deal works is the one that says what happens when the founder wants to leave. Write that one first.