How To Exit And Sell A Company

Is it time to sell or move on from your business? This article gives an overview of a few of the main exit strategy options an entrepreneur will need to consider.

Moving on from your business is one of the most important events in your life as an entrepreneur, whatever the reason behind it. It takes preparation, planning, research and professional advice without which you’re unlikely to achieve your aims and objectives or the best possible value.

Depending on which exit route you take, what shape your business is in, what you want to achieve and what you want for the future of your business, the process could take a number of years.

Trade sale

Selling to a third party is often an obvious first choice but not without complications. You should allow at least 2 years in order to prepare for careful scrutiny and identify the right type of buyer.

Trade sales are not necessarily to direct competitors but often to more strategic buyers looking for new markets and growth in market share and their brand. The alternative is a more financially focused buyer who’ll be looking for solid cash flow, a dependable market position, lower capital expenditure requirements and products or services in markets that are growing.

Merger with another company

Although a merger may seem an attractive way out and an opportunity for your company to diversify and grow after your exit, mergers come with their own unique set of challenges. Often the seller will exchange the shares in their company in return for a smaller shareholding in a larger company seeking the merger. This is particularly attractive if the acquiring company’s shares are publicly listed and traded, or this is likely to happen in the future.

Merging normally involves a similar or larger company. That’s great if you have two companies with complimentary skills but it can be a challenge merging finances, people, processes and vision for the post-merger team.

Initial Public Offering (IPO)

With an IPO, you offer your shares for sale on a stock market, thus changing the status of your company from private limited to publicly owned. The advantages are that both you and your management team may be able to remain in place for a period of years, your investors and managers may be able to sell some stock and your company may continue to operate much as it has in the past. An IPO can also create large amounts of capital in a short period and the accompanying publicity around the offering significantly increases the profile of the company.

On the downside, the company’s regulatory and compliance burden will increase and decision making can become slower and more complicated, as you take into account shareholder views, votes and interests. IPOs can also be expensive to transact and time consuming as you identify the right market and wait for the right time.

Management Buy Out (MBO)

This is a great opportunity for management looking for a challenge or if one of your objectives is to maintain a legacy in the shape of the future of your company. Because the buyers of the company are already very familiar with it, there may also be a case for not having to give such detailed warranties (as in the case of a trade sale) and unexpected issues arising from the due diligence are less likely to cause problems and derail the buyout.

However, an MBO will rarely achieve a premium price for the vendor and often comes with financing issues.

Management Buy in (MBI)

Similar to an MBO, with an MBI a management group or managers from outside the organisation buy the company. Often this is management who have valuable industry experience, if not detailed current knowledge of the business.

The purchase will frequently be funded by a venture capital organisation, personal finance or a mixture of both. It may be an attractive option if the incumbent management have insufficient experience or finances for an MBO.

Buy in Management Buy Out (BIMBO)

A hybrid of an MBI and MBO is often referred to as a BIMBO (Buy-In Management Buy Out) where both internal and external management combine and pool their experience and resources to buy the business.

The result is often a much more efficient transfer as the existing members of management are already familiar with the company. A BIMBO may also be the answer where the existing management lack certain expertise or funds.

Vendor associated MBO/MBI (VAMBO and VIMBO)

With a sizeable business, an MBO or MBI will often be supported by private equity funding. For smaller businesses, the purchasers will usually have to contribute some of the purchase price personally which means they carry some personal financial risk.

In the case of either an MBO or an MBI, sellers can support the buyers by deferring payment of some of the purchase price, agreeing to sell their shareholding in stages or by providing a package of funding arrangements to support the management team. Such subsequent payments to be made by the company are often subject to security arrangements including personal guarantees, a debenture registered against the company and charges at the Land Registry in respect of any property owned by the company.

Family succession transfer

You may want the family firm to be passed on to another family member, either by way of sale or transfer. Important considerations arise in respect of tax and estate planning. Often there may also be the terms of an existing family trust to take into account, consideration of whether a trust should be drawn up and questions over how and when control and assets will be handed over.

Family succession can be a very emotive process and also often throws up personal issues such as what happens for example, if the incoming family member gets divorced.

Selling up and closing down

You can of course just shut up shop and liquidate your assets. There might be a good reason for this, such as a change in the market making the business no longer viable but it still requires careful planning. You want to be sure you get the most you can out of your exit, so it’s important to weigh this option up against other possible exit strategies. You will still of course, need to consider tax and estate planning.

There is no one correct exit route and what is best for you will depend on many different considerations. The key is to take proper advice as early as possible. We know a number of advisers who can help you sell your company, particularly in respect of finding a buyer or sourcing private equity funding, and would be happy to make a relevant introduction once we know your circumstances.

It goes without saying, but to successfully complete any of the aforementioned exit routes will often mean spending a lot of time working with a lawyer. We have significant experience advising on and negotiating many different types of M&A deals and are very familiar with the documentation involved and how to resolve the common issues that arise.