Why do businesses decide to sell? After decades of experience advising and representing executives in the middle market, we’ve nailed down the top 3 factors that compel owners to sell their companies. To be clear, this isn’t to say the owners are selling the entire business. Some may very well want to sell the entire company, while others opt to sell only a majority or minority stake, so the owner can continue to retain some control.
One of the most common reasons to sell a business is retirement. Owners naturally age out of their business at some point. They no longer want to work full-time or deal with the rigors of running the company every day. Most are still passionate about the business but cannot or do not want to work at such a high level of demand day in and day out as they grow older. However, many can’t imagine not working at all and want to remain connected or involved with the company they worked hard to build. Ownership transition planning, or exit planning, is critical to nailing down a direction that can achieve the outcome that each owner seeks.
Client Case Study:
For a detailed example, check out Ownership Transition Planning: A Second Generation Business Owner.
Another reason middle market business owners decide to sell, because they want to “take chips off the table” (for lack of a better cliché). Many middle market business owners have a significant portion of their net worth tied to their business. They don’t maintain enough meaningful personal financial liquidity outside of their company to be financially stable (to sleep at night). Therefore, they seek alternatives.
One question we often hear is, why do I need to diversify my wealth if my business is thriving? Cliché time again — because all of your eggs are in one basket. Some owners cannot identify the inherent risks within their company, and they don’t see their company as facing any risks. This leaves them financially vulnerable. In this case, we have clients who sell a minority interest, sell majority, or bring in debt (i.e., a leveraged recap to take money out of the business without giving up equity). We offer middle market owners personalized expertise to determine the best path to achieve financial prosperity.
Client Case Study:
One client had less than $1M of financial liquidity and his entire net worth was tied up in his business. With the help of his personal financial planner, he determined how much money he needed to invest in order to generate the amount of income he needed to retire. As a result, he retained Footprint to run a sell-side transaction with a target sale amount in mind. We found the right buyer and achieved the client’s desired outcome, while he took a big step closer to realizing his retirement dreams.
In the middle market, many owners sell in order to scale their business. The options are varied and can range across all facets of transaction types. Middle market business owners seeking expansion may pursue a merger or acquisition to gain market share. Alternatively, they could sell of equity to fund the expansion of a product line, territory, or other growth objective.
Client Case Study:
Our clients felt that the business had hit a ceiling in growth and needed a strategic or financial partner to take the company to the next level. The owners sought to scale the business in order to maintain a competitive advantage, or at least keep pace, with their bigger competitors. Footprint ran a sell-side transaction. Ultimately, the clients sold to a private equity-backed company within their industry.
Deciding to sell a business can be a daunting process. If you or your executive team are considering your options, please Contact Us.