Selling Your Business

A trade buyer is a company operating in your sector or adjacently in terms of geography, product or market, in the UK or abroad. The trade buyer might be a direct competitor or a company at a different point on the value chain, such as a customer or supplier. Trade buyers typically aim to benefit from strategic and synergistic alignment and so will often pay the highest price.

Benefits to business owners include:

• Trade buyers often result in the highest price, often because of synergies that are achieved between buyer and seller
• Trade buyers typically buy 100% of the business giving you the chance to exit your business completely
• You may be offered a reduced but significant role in the company
• The market position of your business may be enhanced as part of a larger group with complimentary products and services
• Familiarity with the sector can enhance the chemistry between the buyer and your business

A financial buyer might be a private equity investor, an external debt provider such as bank or debt fund, a family office or even a high net worth individual. They will be looking to take a minority or majority stake in the business as part of a leveraged buy-out (LBO) transaction. The financial buyer will join the board of directors and typically look to sell their stake or exit the business within three to five years.

Benefits to business owners include:

• The ability to realise capital from your business whilst staying involved
• The opportunity to earn greater longer-term rewards as you retain a shareholding in a growing business
• A higher valuation price which can be achieved by gearing
• Minimal day to day interference; financial buyers are less likely to get involved with daily operations or disrupt staff
• Chemistry with the buyer is often easier as there are less people directly involved in the business
• There may be additional opportunities for growth backed by the buyer in the future

Selling to management involves the transfer of business ownership to a capable and ambitious senior management team via a management buy-out (MBO). The seller receives an initial payment with the remaining portion paid over the next three to five years. This type of sale can be funded by a private equity investor or an external debt provider such as a bank or debt fund; excess cash in the business is also often used to part fund a MBO.

Benefits to business owners include:

• MBOs are often the easiest and most straightforward type of sale to arrange
• Selling to management is the surest way to maintain confidentiality about the sale
• MBOs generally have the highest sale completion rate
• A higher valuation price can be achieved by gearing
• You can be confident that the management team has a deep understanding of the business
• MBOs typically result in a smoother transition for members of staff
  
  

An Employee Ownership Trust (EOT) is an indirect type of employee ownership where shares are held by an independent trust on behalf of all employees. This method of sale is especially attractive to company owners who can’t or don’t want to arrange a trade sale, perhaps because the business relies on a key contract, member of personnel or unprotected intellectual property, all of which may reduce their value to trade and financial buyers.

Benefits to business owners include:

• Achieve a fair market value for your shares
• Preserve the legacy and ethos of your business
• Benefit from favourable tax exemptions
• Incentivise your management and staff with the structure
• Exit in a straightforward and quick transaction
• Remain involved with the business if you would like to

Larger companies may be suited to an Initial Public Offering (“IPO”), also known as “floating” or “going public”, which means giving over a percentage of the company for purchase by the public in the form of shares. The company is listed on an exchange such as the Alternative Investment Market (AIM) or the London Stock Exchange, at which point shares can be bought and sold on public markets.

Benefits to business owners include:

• The opportunity for you and fellow shareholders to realise cash 
• An injection of cash into the company to fund growth without resorting to debt and interest payments
• Ability to raise debt on more favourable terms from banks
• The opportunity to retain equity ownership and operational control while raising the company value
• Raise company profile and press coverage
• Improved ability to attract the best talent in the market with stock options and shares for which there is a market