It’s never too early to begin with the end in mind. After all, there’s so many things to consider when planning for your exit, especially if you’re going to sell your business.
For instance, did you know there are different types of buyers? Yes, there’s more to it than who will offer you the most money. Let’s have a discussion about strategic versus financial buyers.
A strategic buyer is often a competitor, supplier or customer of your firm. When you sell to a strategic buyer, you almost always sell 100% at once and then go on your merry way.
A financial buyer, on the other hand, is a group such as a private equity firm, venture capital firm, hedge fund, family office, etc. Selling to a financial buyer such as a private equity group (PEG) may result in selling your business twice. Why? PEGs invest in companies they feel they can grow and increase their marketability for a future sale. Typically, PEGs will look to buy 80 to 85% of your company’s equity. Current ownership will retain the balance. If the PEG sells the company five to seven years later, you will be paid out your remaining equity and in some cases this remaining equity of 15-20% will be worth the same or more than the original sale of 75-80% of the company. This is referred to as the “second bite of the apple.”
So how do you know what’s right for you and your company? It is important to (1) be realistic and aware of what your business is worth and how to increase that value prior to the sale; (2) meet with a transactions team to discuss and explore options; (3) meet with potential buyers, PEGs, investment bankers and brokers to receive their input and learn more about their position in the transaction.
Contact a member of our Transactions Services team to learn more about the various types of buyers and transitioning your business…even if the transition is years away. It allows time for adequate planning and preparation to increase the return on investment.