Selling Your Business: Understanding the Buyer Landscape
The type of buyer that’s right for your business will depend on your motivation(s) for selling, along with your personal and financial objectives.
Exiting a company is often a “once in a lifetime” event for many business owners. If you’ve reached the point where you are considering a sale of your successful business – congratulations on this significant achievement. While retirement is a common reason for selling a privately-owned business, others include favorable market conditions, seeking additional financial or strategic resources, or other personal reasons such as health considerations. The type of buyer that’s right for your business and your situation will depend on your motivation(s) for selling, along with your personal and financial objectives.
Here’s a high-level breakdown of common buyers and what you should know about each:
A strategic buyer is typically a company within your industry looking to expand its operations, gain market share, obtain talent, or achieve synergies. This buyer might see your business as a complementary addition to their existing operations, which could drive growth and efficiency. Selling to a strategic buyer often involves a premium price because they value the operational and financial synergies your business offers. However, this option could result in significant changes to your business' structure, operations, and culture, depending on the buyer’s goals. Often strategic buyers will achieve synergies by consolidating locations or terminating redundant personnel. It is unlikely that the owner stays on after the sale in most strategic acquisitions.
Sell to a Strategic Buyer
If your business has a strong management team and solid growth potential, selling to a private equity firm might be the best route. Private equity firms accomplish growth by increasing productivity, providing guidance and resources, keeping quality management in place, as well as contract negotiations, sales expertise, and more. A private equity buyer is also likely to be flexible on the structuring of the transaction, including whether the owner stays involved as a partial investor or steps away entirely. Private equity firms typically acquire a significant stake in the business, and with that comes significant influence on key decisions. At the same time, a private equity purchaser will provide equity opportunities for the existing management team that won’t be available with a strategic buyer. There are many styles and types of private equity, so it’s critical to find a private equity partner that shares your same values and vision for the future.
[For more on this topic read our article: Q&A: Selling a Business to Private Equity]
Sell to a Private Equity Firm
Your management team knows your business inside and out, making them a viable option as potential buyers. A management buyout (MBO) allows your business to remain in the hands of those who understand deeply its operations and culture. If you have determined your management team has the necessary skills and experience to lead the company as owners, they may not have the financial resources to purchase the business outright. In such cases, they might partner with a private equity firm or obtain a bank loan to secure the necessary capital while still maintaining significant equity and a degree of control over the business’s future.
Sell to Management
(Management Buyout)
An ESOP involves selling your business (typically one with at least 25 employees) to your employees through a trust. This option can be a great way to ensure that the people who helped build your company continue to benefit from its success. Employees gain a vested interest in the company’s performance, which can drive motivation and loyalty. While setting up and running an ESOP can be complex, it allows owners to sell their business gradually, providing flexibility in terms of timing and the extent of the sale.
Which option is best for you? Selling your business is more than pounding a For Sale sign by the side of the road. When it comes to selling your business, the right buyer can make or break the transition of your legacy. Whether you choose to sell to a strategic buyer, a private equity firm, your management team, your employees, or even your family, each option offers distinct advantages and considerations. Consider factors such as the impact on employees, the future of the business, financial outcomes, and your personal involvement post-sale. Understanding these options and carefully evaluating them against your personal and financial goals will help you make the best decision for your future.
At Borgman Capital, we understand the intricacies of this decision-making process. That’s why business owners and founders turn to us for candid advice and guidance navigating the ins-and-outs of private equity – even if it does not result in an opportunity for Borgman Capital. For more information on navigating the sale of your business, or to discuss your specific situation, reach out to us for a confidential conversation.
Sell to Employees (Employee Stock Ownership Plan - ESOP)