The Importance of Sale and Purchase Proceedings in the Spanish Hotel Sector
Tourism activity in Spain is currently exceeding historical figures in terms of foreign tourist arrivals. In 2023, 85.1 million visits by international travelers were recorded. The Balearic Islands attract significant international tourism and offer an extensive range of hotels, increasingly focused on the luxury sector. Major names in the international hotel industry, such as Belmond, Four Seasons, Six Senses, and Nobu, have established distinctive hotel properties on islands such as Mallorca and Ibiza.
In business, especially in capital-intensive sectors like the hotel industry, the sale and purchase of assets are critical processes that require meticulous attention to detail and a thorough understanding of the legal and operational frameworks governing these transactions in Spain. This task becomes even more complex when it involves large-scale assets, such as hotel properties and operations.
Structure of the Sale and Purchase Operation
The first step in the sale and purchase of business assets involves deciding between an asset deal and a share deal. In the hotel sector, this decision is crucial and depends on multiple factors such as tax strategy, risk assessment, and the corporate structure of the business in question.
The choice between an asset deal and a share deal involves significant considerations. In an asset deal, the purchase focuses on acquiring specific assets and liabilities, often allowing for the exclusion of hidden liabilities, except those inherent by law such as tax, labor, or environmental liabilities. This gives the buyer the ability to select precisely which elements of the business they wish to acquire, providing clarity and limiting certain risks.
Conversely, a share deal involves the acquisition of shares in the company, and thus indirect ownership of all its assets and liabilities, including those undisclosed or unknown at the date of purchase. This may increase risk exposure but also allows for a simpler transfer in terms of formalities, especially when dealing with assets that require specific registrations, such as real estate.
Preliminary Deals
Before any final agreement is reached, a number of preliminary deals are made that set the framework for future negotiations. These deals include confidentiality agreements, letters of intent, and purchase offers, which are essential to establish mutual understanding and seriousness between the parties. Although often non-binding, they commit the parties to certain essential aspects such as confidentiality and exclusivity and allow the due diligence process to begin, where the value and risks of the asset in question are assessed in detail.
Due Diligence: Cornerstone of the Process
Due diligence is perhaps the most critical aspect of the sale and purchase of hotel assets. This process allows buyers to gain a detailed understanding of the business, including its legal, financial, employment, and tax structures. In the hotel context, due diligence also includes a thorough real estate review, vital given that real estate plays a central role in the asset’s valuation.
This phase is vital not only to validate the information provided by the seller but also to identify any potential risks that could affect the viability of the transaction. The results of due diligence will directly influence the contractual negotiations, affecting the collateral required and the valuations of the assets.
The Sale and Purchase Process
Once due diligence has been satisfactorily completed, the sale and purchase agreement is drafted. This document details the terms under which the assets or shares will be transferred, including closing conditions and price adjustments. It is essential that all parties understand and agree to these terms to avoid disputes during the execution phase of the transaction.
In sale and purchase agreements, both the seller’s representations and warranties and any suspensive conditions that may apply should be clearly specified. These elements not only protect the buyer against possible discrepancies in the information provided or breaches of the agreement but also establish a framework for the resolution of post-transaction disputes.
Specialized Advice in the Hotel Sector
The role of legal and financial advisors is indispensable in these transactions. In the particular case of hotel transactions, experience in the sector and knowledge of the local regulatory framework are crucial. Specialized law firms, such as Buades Legal, play a decisive role by offering comprehensive advice covering all phases of the sale and purchase process, from the initial evaluation to the completion of the transaction.
Buades Legal also actively collaborates with Lionsgate Capital, the leading mortgage brokers in the Balearic Islands and mainland Spain, advising clients on all mortgage matters involving the purchase of both private real estate and hotel assets.
Our accumulated experience in large hotel transactions allows us to offer invaluable insight and ensure that our clients’ interests are well protected throughout the entire process.
Conclusion
The sale and purchase of hotel assets require not only a thorough understanding of market mechanisms and a detailed assessment of the assets involved but also an expert handling of negotiations and legal documentation. In a business world that values both security and efficiency, the importance of following a structured and well-advised process cannot be underestimated. This is the sure path to successful transactions that maximize value for all parties involved.
Article by Gabriel Buades
Partner in Buades Legal
Buades Legal is a Palma de Mallorca law firm founded in 1979. The firm’s work model is based on the provision of a broad range of advisory services by a team of highly qualified legal professionals, with a wealth of experience in their respective areas of practice, who are assisted by a solid administrative support structure. Gabriel Buades, as a member of the firm’s International Desk, he says that his time abroad helped him to appreciate: ¨the value of Anglo-Saxon formalities and tradition, German perseverance and the entrepreneurial capacity of people from the USA¨.
