Sell Your Business Series – 3 Key Things to Think About Before Selling your Business

March 22, 2021

Welcome to the first blog in our “Selling your business” series. This blog explores 3 key things to think about before embarking on selling your business.

Our next blog will delve into the different types of buyers you might approach, and their respective pros and cons.

 

1.     What are my objectives?

Misalignment of objectives between shareholders is a key reason many sale processes fail. You (and your other shareholders) must consider what you are looking to achieve from the exercise before getting started.

Setting objectives involves more than simply agreeing on what value you are happy selling your business for. When are you looking to sell? What percentage stake are you looking to sell? Are you looking to have an ongoing role? If so, for how long? Is there anyone in the business that should be looked after? These are only a few of the financial and non-financial questions you should ask yourself.

It is critical you fully identify your objectives at the outset of an exercise as these will ultimately shape your exit route and the types of buyers you speak to.

 

2.     Do I need to obtain any third party consents?

Third party consents may be required before a transaction can complete. You should avoid getting into a position where completion of a deal is reliant on these, so it is recommended these are considered before you start the process. In some cases, it may be preferable to wait until a buyer is on the table if certain relationships where approval is required to be sought (e.g. with a customer or supplier) are commercially sensitive.

 

3.     What are my exit routes?

There are several exit routes you can take. Some of the more common types of transaction are set out below:

 

Trade Sale

If your business represents a good strategic fit with a buyer’s existing operations, a trade sale could enable you to fully exit from your business. It is also often the case that buyers are willing to pay a premium for synergies they can unlock through the acquisition.

 

Management Buyout (MBO)

MBOs are a route, which enable the growth of your business to continue under an existing management team. More than often, the management team looking to complete the buyout will need external investment to finance the deal, which is usually obtained through private equity funding or debt providers.

 

Partial Sale & Growth Investment

Selling a partial stake in your business can allow you to de-risk and realise some value today, while remaining involved and in control of day-to-day operations. Sometimes these deals involve growth investment also. It is important to note that any investor be seeking a return on their investment, so will want to ensure that any cash sums received by you today are not significant enough to not distract you from achieving future growth and an ultimate exit down the line.

 

Initial Public Offering (IPO)

An IPO is the process of realizing value from listing the shares in your business on the stock market. This is a costly process; however, it can be hugely rewarding for some businesses.

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