Which is right for you? These are the key elements of an external sale to help inform your decision.
BASICS OF AN EXTERNAL TRANSFER
An external transfer is a sale to a strategic buyer or a financial buyer. This could be a large company within your industry or a private equity firm. You have a couple options to execute the sale.
You could consult with your network of professional advisors - lawyers, accountants, business valuation experts, financial advisors, bankers - to help prepare for the sale, structure the deal, identify a suitable buyer, and more.
Or you could work with an investment banker or broker to market your company. They may approach select buyers quietly or people within your network. They may also notify the public to inspire interest and attract more buyers.
NINE FACTORS TO CONSIDER
Depending on your goals and retirement plans, some of the following factors may strike you as a pro or con. Take note of each factor and how you rank the risks, benefits, etc. to help you determine whether this is the right option for you.
In an external transfer:
- Business value is generally maximized.
- The cash you earn from the sale could be in the form of a lump sum or earn out.
- Your company's brand is now in the hands of the buyer.
- Any future success is based on the condition of your company at the time of the sale and the buyer's capabilities.
- There is an extensive due diligence period. If your company is in great shape, this process could take 6 months or more. If your company is not in great form, it will likely take longer.
- Buyers typically want a low price for high quality and minimal risk.
- You face some significant risks. You may have to assume all liabilities in an asset deal. And, if your sale is public knowledge, it could disrupt your business, employees, business partnerships, etc.
- You could be retained for three to five years in a consulting role.
- Costs may be high as many professionals will be involved - brokers, lawyers, CPAs, etc.
KEY QUESTIONS TO ASK
Can my business function without me?
If your business needs you to stick around to train new management, shore up business partnerships, and keep the brand equity strong - this type of sale may be tricky. Prospective buyers may not want to retain you. But, if you trust your business can make it on its own, this could be the right fit.
How many potential buyers are out there?
If buyers are scarce and you need to sell quickly, an external transfer may be hard to execute. You could have better luck selling to a family member or group of current employees.
Succession planning takes time. You need to know which sale factors matter most to you and how they impact your transition, buyer selection, and terms of the deal. Consult with your professional team years in advance to make sure you're on the right path.
If you have any questions regarding your succession plan, please contact your Beene Garter professional.
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