By Eric Reich
There is a multitude of information out there today about selling a business. Most of that information centers around maximizing the value of the business before the sale. It goes without saying that this is obviously of great importance to a business owner. Still, more information concerns how to market the sale itself once you are ready to sell and have maximized the business’ value. What there is surprisingly little information about it the different ways in which the business itself can be sold. This is concerning because one of the most important aspects to a successful sale includes making sure the transaction is a good “fit” for all parties involved. Part of having a good fit is to sell it not only for the highest price, but also in the most effective way. There are many different ways to exit your business, and this week I thought we could cover a few of those ways.
1. Internal sale – Some owners want someone on the inside of the company to be their buyer. Reasons for this include the desire for the company to continue with as little changes as possible. This is common in small locally focused businesses. Benefits include having an existing relationship with the buyers and a natural comfort level for both parties. The downsides can include not maximizing the sales price in exchange for the “comfort level” of the buyer.
2. External sale – If there are no interested employees, then many owners will choose to look outside the company for a friendly competitor or similar. This is often the most common sale method other than an internal sale. This is also more common when the value of the company exceeds the ability of an internal buyer to pay.
3. Employee Stock Ownership Plan or ESOP – An ESOP is typically used as a means of transferring stock over time. Advantages include a built-in market for your shares, more loyal employees with less turnover, and potential capital gains tax deferral.
4. Sale to roll up – Roll ups are businesses that are in the business of consolidating smaller similar companies to create a larger, more valuable company. Benefits include selling to a company that has likely made many previous transactions which can help the process go more smoothly.
5. Merger – In a merger, unlike a roll up, you are simply combining companies but not necessarily looking to create a large national presence like a rollup. These are typically friendly competitors.
6. Listing on an exchange or going public (IPO) – The benefits of going public include more access to capital which may result in more potential for growth.
Who can help me decide which is the right strategy for me? For smaller businesses, your CPA or a business broker may be able to guide you in making the right deal structure. For large transactions, an investment bank will typically get involved. An investment bank’s common role is to assist businesses in structuring sales as well as advising on financing, mergers and going public (IPO). Small businesses with values from $2-$10 million are typically handled by CPAs. Business brokers and large business sales with values typically $200 million + are handled by investment banks. The void I see in the market is businesses whose value falls between $10-$200 million. For businesses of this size, I typically see a team of advisors work together in each area of their specialty to put all the pieces together including your CPA, attorney, financial advisor, and consultants. We are starting to see more consultants enter this space in order to fill the void for businesses of this size.
Before considering a sale, make sure you are ready for the sale. Walking away from your business is never easy. Next, make sure your business is ready. Make sure technology, sales, systems and processes are easy to assimilate. Lastly, make sure you sell the right way and to the right buyer.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a
Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations. A lifelong resident of Cape May County, Eric resides in Seaville, NJ with his wife Chrissy and their sons ,CJ and Cooper, and daughter Riley.
