So, you’ve started to consider business exit planning.
But which option yields the most attractive return — for you, your employees, and your business’ legacy?
There are many business owner exit strategies to consider when it’s time to sell, and each has a range of pros and cons. For many people, it’s not simply a matter of money—it can be to reset the business’ life cycle and fund new opportunities for growth, to retire or divest it from your portfolio. Other aspects you should consider include:
- Your preferred buyer’s profile and their objectives
- Valuation of the business
- Your involvement in the business after the sale
- Tax implications.
When investigating how to exit a business, many owners or majority shareholders prefer to consider all possibilities, welcome all offers and then work through a process of elimination. While this process can bring various options to the table, it can also be lengthy and expensive. This is where deal fatigue can set in, as sellers gradually wear down during a protracted process and risk succumbing to an inferior offer.
Does your business exit planning match your personal goals?
In our experience, identifying what you want to achieve from the outset is the most productive and efficient way to focus your exit planning for business.
Some strategies to start your succession planning include:
Exit your business via a trade sale or sale to a financial buyer
One of the most popular ways to exit your business is to sell 100% of the company’s shares or business assets to a strategic buyer, such as a competitor, supplier or customer. This allows for a full and clear exit and helps mitigate business deal fatigue by keeping potential buyers motivated to maximise cost synergies or explore opportunities to vertically integrate their company. However, we’re seeing more buyers seeking a staged sale where, for example, 50% of the sale price is paid upfront, with the remaining 50% settled later once certain agreed-upon parameters are met.
Alternatively, a sale can be made to a financial buyer such a private equity buyer who will normally buy a ‘controlling’ interest in the company, say 60% and will exit the business together with the owner in the next 3-5 years.
Exit your business through partial sale or merger
It may be more appropriate to pursue a partial divestment (either a minority or majority stake) to a strategic investor, management buyout, or private equity partner. Strategies involving partial transfers of ownership may include terms requiring some initial commitment from the owner to ease the transition for an agreed period.
Management Buyouts (MBOs) are an attractive option for maintaining stakeholder confidence and stability. Increasingly, private equity deals are popular, allowing for strategic partnerships with other firms to aid company growth.
Exit your business via an IPO
Depending on your business’s nature, financial stature and scale, floating on the Australian Stock Exchange (ASX) as a listed company can be a suitable business owner exit strategy. A public float comes with several additional rules, responsibilities and costs, which need to be carefully considered and balanced against any perceived or potential benefit, such as access to capital and ultimate price or value appreciation.
Casting the net for buyers
In assessing the most appropriate exit strategy, it’s important to identify the range of potential buyers who would best benefit the business and fit their own interests or business portfolio. Such groups may include:
- Buyers already known to the business, such as suppliers and customers
- Interstate and international businesses in the same industry wishing to expand their reach and distribution
- Businesses providing similar products and services but focusing on different customer segments
- Direct and indirect competitors
- Financial buyers such as private equity
Source: WilliamBuck
