September 19, 2023
As a business owner, it’s never too early to start thinking about the best options for selling your business. There are numerous options to consider, but no one-size-fits-all. Choosing the right exit strategy depends on several factors, including your business type, industry, market conditions, size, and goals.
This guide discusses the most popular ways to sell a business, known as “exit strategies,” and when they may or may not be a good idea. However, before embarking on any sales or exit process, it’s advisable to consult a qualified corporate finance professional to provide expert guidance.
Management Buy-Out (MBO)
A Management Buy-Out occurs when a company’s existing senior management team acquires a controlling stake in the company from its owners. It’s an attractive prospect for motivated management teams with a clear strategic vision for the company’s future. From the owner’s perspective, this enables them to exit the company and leave it in the hands of people who can run it effectively.
Spending time creating a strong SMT, with all the characteristics to lead the business will help ensure a successful outcome. MBOs are often funded by debt or VCs, the stronger the MBO team the greater level of support will be available from funders.
Often MBOs of SME’s will include an element of deferred consideration, therefore the strength of management is as key to the vendors as it is for the funders.
Employee Ownership Trust (EOT)
The Employee Ownership Trust model of business ownership, introduced in 2014, allows a trust to acquire a controlling stake in a company for the benefit of all employees. It offers numerous benefits for exiting owners, employees, and businesses, including certainty of exit, full market value for shares, and tax-free annual bonuses for employees.
In comparison with a trade sale, EOT transactions often involve an element of deferred consideration, the vendors should be comfortable with this structure and the associated risk.
In our experience, EOT’s can support an extended transition from founders to a new management team, as ownership and leadership/management can be disconnected by the process.
Trade Sale
Trade sales can often maximise value and initial consideration, where the value of the combined entity is enhanced post-transaction.
However, finding the right purchaser can be a timely process, involving building target lists of potential acquirers and carrying out extended marketing activities.
One of the perceived negatives of the trade sale process is the sharing of information, with other businesses and potentially competitors. It’s the role of the corporate finance advisor to manage the release of information and provide assistance in protecting business value.
A trade sale can also be the preferred option when succession has not been built into an existing business, if the acquirer has capacity to take on management responsibilities, this can allow the owner to exit, without having to invest in building a succession platform.
Management Buy-In (MBI)
A Management Buy-In involves bringing in an external management team or group of investors to take over the company’s ownership. It may be a good option if the new leadership can bring in new strategic ideas, relationships, and additional capital to fund new projects.
Funding MBI transactions can prove more difficult than might be expected, funders see additional risk of a new management team, without historical experience. A hybrid of MBO and MBI, BIMBO may be considered more fundable.
Conclusion
Selecting the right exit strategy is critical for any business owner looking to sell their business. With the right guidance from corporate finance professionals, it’s possible to choose the best option for your business type, industry, market conditions, size, and goals.
Do you want to find out more about selling your business? Speak to one of our experts today!
Chris leads a team specialising in M&A and financial Due Diligence services.
With a proven track record of successful transactions, Chris brings extensive deal experience and operational knowledge to assist clients in achieving their business objectives.
Matt leads various projects, including company disposals through MBOs, trade sales, and EOT sales. He also oversees daily team operations and supports their learning and development.
