We are exploring the recently released book, “The Exit Strategy Handbook” by Jerry Mills, the founder and managing partner of B2B CFO®. Some owners have identified a strong potential buyer for their company when they near retirement, but others will need to find the right buyer(s).
Jerry Mills spells out some of the most common buyers in “The Exit Strategy Handbook”:
- Strategic buyers, such as a competitor, customer or supplier
- A investor who sees a financial opportunity
- Management Buyouts
- Family members
- Employee Stock Option Plan (ESOP)
- Private equity groups, sometimes referred to as PEGs
- Initial Public Offering or IPO
Each buyer type has advantages and disadvantages. Management buyouts and sales to family members can provide a very comfortable transition for the business owner but these buyers may not have sufficient capital to finance the transfer. Lack of financing can require the owner to finance a portion of the deal, which can result in the owner not getting enough money to immediately support retirement.
Strategic buyers, investors and private equity groups will normally have the funds available to complete a transaction, but may want the owner to stay involved in the company for a transition period, thereby delaying the owner’s retirement plans. This situation may also be a struggle if the acquirer brings a different culture to the company, and expects the seller to champion that culture.
Few smaller companies will be candidates for an IPO as their size will not be attractive to the public investor and mutual fund world. In addition, an IPO can be time consuming and expensive. New public owners and the SEC will want to know a lot about the business, their markets, competitors and leadership. This level of public exposure is often at odds with the way closely-held companies have conducted their affairs.
ESOPs are viable options but it may take a number of years to structure a transaction and allow the owner to transition out of the firm.
Each type of buyer brings different focuses and challenges for the seller/owner. In future blogs, we will focus on how businesses are valued, how the owner can improve the value of their firm, who should serve on your Success Team™, and buyers what will want to know about during the sale process.
B2B CFO® has over 200 experienced chief financial officers who have a deep knowledge of transactions and business improvement that can be tapped to help you sell your business. You can explore the backgrounds of our team at www.B2BCFO.com/index.php?page=cfo-directory .
 Mills, Jerry (2013). The Exit Strategy Handbook. ISBN 978-0-09886932-1-0, Jerry L. Mills and B2B CFO, LLC., pp. 12.