The majority of the time, clients come to us seeking help with an exit plan that involves selling their entire business. But we have also helped clients navigate partial sales that made their businesses more successful or enabled the owner to take money out of the business to diversify their net worth. This can mean selling as little as 20% equity of the company to 80 or 90% equity. If the business owner sells a minority of the company (under 50%), he or she can retain control while gaining financial benefits. If the owner sells a majority of the company, the investor may take control of the business and will want to make sure the next generation of management has an opportunity to obtain some ownership.
So, when is retaining equity in your business after a sale a good idea?
There is a major disruption – The current pandemic is a perfect example, but any financial disruption that could cause a buyer to perceive your company as a risk could be a good time to retain equity. It allows the buyer to take advantage of the skills and knowledge of the business owner to get through a rough patch. But even more important, it demonstrates that you have confidence in the future of your business and are willing to keep some skin in the game.
You want to broaden your buyer prospect options – Many private equity groups have a strong preference or require that a business owner retain some equity for the same reasons stated above. Being open to selling a portion of your business opens your buyer pool up to a wider audience.
You need capital – Having access to capital can make growing your business a lot easier. Selling part of your business to the right partner can open up new avenues for growth. Your business can become more bankable with the support of a strong balance sheet.
You need expertise – If you’re struggling to implement the framework necessary to take your business to the next level, a partial sale to a buyer who has expertise in an area you lack, or who has led one or more businesses through a growth period could be the answer. A partnership with the right person can make your life easier and your business more successful.
You need liquidity – Many business owners have most of their wealth tied up in the business. A partial sale can be a smart way to pull some cash out of your company and use that money to diversify your risk. If that is your goal, timing is critical; the best time to do this is when your business is doing well.
We’ve seen situations where a client retained a small ownership stake and that smaller percentage resulted in a much larger payday than the earlier portion sold years later.
If you haven’t considered a partial sale, it can seem like a strange option. But successful businesses with positive cash flows are attractive to minority and majority investors.
A partial sale to the right partner can help your business flourish and allow you to achieve your goals. O’Keeffe & O’Malley can walk you through the process and help you find the right partner. For a confidential meeting or discussion, call us at 913.648.0185, or email [email protected]