There is a complete misconception about this. Standard thinking is that selling a business is like selling a car. You put the keys on the counter and you simply walk away.
In topic 16 we discussed Seller Objectives. This should be a very thoroughly throughout objective. What do you really want to accomplish with a sale or partial sale?
- Economic freedom
- Regain personal time
- Get out of the drudgery of back-office duties
- Gain strategic resources
- Accelerate Expansion
- Retire
- Commence an Extended Transition
- Take Some Money Off the Table
- Reduce Risk
- Add Intellectual Capital
This list could go on to 50 or 100 themes. The key is what do YOU want to accomplish?
This is your company and your future.
Many legacy owners prefer to sell the entire company and ride off into the sunset with generational wealth. That is great and they have certainly earned the privilege.
More youthful owners' interest in changing is often because they don't have enough resources (cash, people, space, IP) and it is prohibiting them from growing or they have developed something special and they want to join a larger more robust dynamic company to increase growth and profitability.
Any percentage from one to one hundred can be sold. Different percentages align differently with different buyers. There are certain buyers that philosophically will only ever buy 100% and there are others that like to tightly manage risk. The risk management type will be very pleased to start with a smaller stake and let the future dictate next steps. They will typically require a right of first refusal or contingent purchase options to purchase the remaining portion that they do not own. This a completely different concept from an earnout.
There is a standard phrase for selling part A first and then selling Part B later. It is often called "getting a second bite of the apple". If it works optimally for BOTH parties the second "bite" can often be worth three or four times the value of the first bite depending upon what the parties accomplish together after the initial transaction.
I was the Chief Accounting Officer when our company acquired all nine of our competitors. We acquired 60% of each one during the first acquisition phase. Then we did a very successful IPO.
The remaining 40% share ultimately was worth four times what the sellers received for the initial 60% and now they had their first real liquidity because their ownership share were now publicly traded.
Illiquidity always suppresses the values of privately held companies and it is almost always unavoidable.
It is very important to assemble a very competent strategic team prior to determining what your sales objective is. This team should include an experienced tax CPA, an experienced M&A advisor and a high-quality transaction attorney.
You get one chance to get this right. Put in the necessary diligence upfront to ensure your short-term and long-term success.