As the owner of a business, there might be several different reasons why you’d consider selling. These can range from personal preference all the way to essential financial decisions, and at Utah Business Consultants, we’re here to help you formulate a smart exit plan if you’ve decided to look into selling your business.

As a primer, it’s good to understand some of the varying reasons why people sell their businesses or transfer ownership. Let’s go over the two broad categories of sale here, plus a few specific examples.

Planned Vs. Unplanned Sale

In general, there are two main categories for the sale of a business: A planned sale from the beginning, or an unplanned sale motivated by a specific event. Many owners enter a given business with the long term plan of selling the entire time – they work to build a business up to a certain threshold, then sell for a profit. In other cases, owners will recognize well in advance that selling is the prudent financial move, and will start taking these steps.

In other cases, specific events will necessitate the sale of a business. These could include personal issues like divorces or partnership disputes, or they could refer to specific business crises or debt issues. They also can happen when an owner dies and heirs have no interest in operating the business.

Competition

One common instigator for a business sale operates slightly between these two broad types: The rise of additional competition. Maybe a major competitor enters the market and threatens your competitive advantage. Maybe two competitors merge together, placing new pressures on your company. In some cases, bigger box stores pushing into niche spaces that businesses occupied forces a sale – smaller businesses simply can’t compete with these stores in terms of promotion and scaling.

New Technology

Another possible reason for selling a business is technology moving past a given business. New technology from a competitor might outdate the way you produce or market your products, rendering your business model obsolete and forcing a sale.

For more on common circumstances that may force a business sale, or for information on selling a business, speak to the pros at Utah Business Consultants today.

Over the past 20 years, private-equity groups (PEGs) have become key players in business acquisitions.  PEGs offer flexibility as a liquidity source, giving entrepreneurs the ability to take some cash off the table, recapitalize their company or simply sell and move on.
Private equity refers to buyout groups that seek to acquire ongoing, profitable businesses that demonstrate growth potential.
The private equity market had traditiaionlly been restricted to acquing larger companies.  But increased competition for those larger operations, greater growth potential for smaller firms and an easier path to exiting the investment in the future have played a role in attracting PEGs to smaller companies.
PEGs are typically organized as limited liability company partnerships controlled and managed by the private equity firm that acts as the managing members.  The fund invests in privately held companies to generate above market financial returns for investors.
The strategy and focus of these groups varies widely with different groups having varied investment philosophies and transaction structure preferences.  Some prefer complete ownership, while others are happy with a majority or minority interest in acquired companies.  Some limit themselves geographically while others will buy anywhere in the US.
PEGs also tend to have certain things in common.  They typically target companies with relatively stable product life cycles; avoid leading-edge technology (this is what venture capitalist want); and have a preference toward stable and established product lines or services.  Most prefer a qualified management team that will continue to run the day-to-day operations while the group’s principals closely support them on the Board of Director level.
Private equity buyouts take many forms, including:
Outright Sale - This is common when the owner wants to sell his ownership interest and retire.  Either existing management will be elevated to run the company or management will be brought in.  A mid-term transition period may be required to train replacement management and transition key relationships.
Employee Buyout - PEGs can partner with key employees in the acquisition of a company in which they play a key role but don’t own.  Key employees receive a generous equity stake in the conservatively capitalized company while retaining daily operating control.
Family Succession - This type of transaction often involves backing certain members of family management in acquiring ownership from the senior generation.  By working with a PEG in a family succession transaction, active family members secure operating control and significant equity ownership, while gaining a financial partner for growth.
Recapitalization - This is an option for an owner who wants to sell a portion of the company for liquidity while retaining equity ownership to participate in the company’s future upside potential.  This structure allows the owner to achieve personal liquidity, retain significant operational input and responsibility and gain a financial partner to help capitalize on strategic expansion opportunities.
PEGs have become a major force in the acquisition arena.  They can also be thought of as strategic acquirers in certain instances, when they own portfolio companies in your industry or a related area that addresses the same customer base.  These buyers may be in a position to pay more than an industry or strategic buyer that does not have this financial backing.

 

 

Wayne A. Simpson CPA, M&AMI is a Managing Partner at Utah Business Consultants and a Merger & Acquisition Master Intermediary with the M&A Source. Utah Business Consultants is a full-service Business Brokerage and Valuation firm.
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