Dynamic Business

Part-sale to a passive equity partner
There is plenty of money available for investment in good businesses. What is in short supply are people capable of running them.

The equity partner will be comforted by having the owner stay on to run the business. This may suit owners who want to unlock some of the capital invested in the business whilst maintaining an interest and an ongoing income stream.

Both parties must have an exit strategy. This may be by way of ultimate sale to a third party or the equity partner installing a manager before the owner retires. An equity partnership may also be appropriate when some of the partners in a business are retiring and others want to stay on but can’t afford to buy the exiting partners’ shares.

Part-sale to an active equity partner
This involves the new partner assuming responsibility for the operation, with the original owner retaining a financial stake and involvement in the operation for a period of time, coinciding with the retention of part equity. There needs to be a phase out over an agreed period.

This may suit where:
•    The owner wants to ‘pre-sell’ the business in preparation for ultimate retirement.
•    The owner wants to maintain an interest in the future success of the business.
•    The incoming owner wants this additional security on handover to ensure a smooth transfer of the goodwill of the business.

Merger with a similar business
A merger is when two companies agree to go forward as a single operation rather than as separate entities. By merging, the combination of the two should create a more competitive, cost-efficient operation than either one currently is. The two companies should hold a bigger market share and achieve greater efficiencies through such a deal. A merger may also benefit organisations unable to survive independently.

Mergers may be driven by the need to create an organisation large enough to support a stronger management team than the separate organisations can justify. This may allow the respective owners to retire from the operation and achieve management succession.

Sell outright
This is by far the most common way for owners to exit their business. With baby boomers now retiring from their businesses, and with their children off doing other things in most cases, their only real exit strategy is to sell.

After the business is sold, the owner no longer needs to worry about it and this can be a great relief in retirement. This strategy provides for the sale to the broader market of prospective purchasers.

The sale may be the single most important business transaction for the owner. It is essential to plan early, get the best possible advice and then proceed to the market with a clear understanding of how much you are likely to realise from the sale after tax.

Key rules when proposing a sale:

• Make sure the business is ‘sale ready’.
• Obtain a business valuation.
• Have an Information Memorandum professionally prepared.
• Make sure the business is properly marketed.
• Don’t try to negotiate the sale yourself.

–Tony Brown is director of Supertrac (www.supertrac.com), a corporate advisory firm specialising in business divestments, mergers and acquisitions to medium and large organisations.