Exit Options

What options are there for your business exit?

Trade sale or third-party sale

Selling your business to a trade buyer or to private investors such as a Private Equity (PE) investor can include the sale of shares or the sale of trade and assets/liabilities. A third party sale means that you can withdraw from full time activity in the business, often after a handover period to allow a transition to let the new team take it forward. Not all third parties will see the same value in your business. When selling your business, you will likely achieve best value selling to a party that has a real ‘strategic’ reason to buy your business and will therefore pay a premium for it.

Advantages of a third-party sale

If managed and marketed correctly, you may get a higher price for your business.
You can exit your business completely, after a handover or earn-out period.
You may be offered a reduced but important role in the new business.
You could retain shares if the sale enhances the market position and share value of the business.
Familiarity of your sector may make the process of selling quicker and easier.
If the buyer is known to customers and suppliers, the transition to the new business is less disruptive.

Disadvantages of a third-party sale

The business may not operate efficiently during the sale process, having a negative effect on trading.
Potential negative impact on team performance, morale and attendance which needs to be managed
Customers may not like the potential buyer and leave, jeopardising the long-term future of the business.
The sale may have a negative effect on company value depending on how the market sees the move.
If the sale doesn't go ahead, your company information has potentially been seen by a competitor.

A lot of the disadvantages can also be managed, or even removed, if you use of a professional advisor throughout the process.

Management buyouts (MBO)

A management buyout can sometimes be an ideal solution for the exiting business owner, especially if the management team are dealing with most of the day-to-day running of the business. You know and trust them, they know the company and can continue your legacy. But an MBO can have its own pitfalls. How do you know that an MBO is right for you and the future of your business?

Advantages of an MBO

The likelihood of a successful completion can be far higher than in trade sales.
Initial discussions around the possibility of an MBO can incentivise management and provide continuity.
Management information won’t be disclosed to external parties and can remain confidential.
Often the negotiations on the value of the business can be easier.
The sale process can often be faster and there can often be more flexibility in the structure of the deal.
You may be able to have more control and retain a minority stake in the business.

Disadvantages of an MBO

The management team may struggle to raise sufficient external funding for the deal. However, when the
criteria is met and the fit is right an MBO can include Private Equity.
The valuation may be lower than a trade sale as the management team won't benefit from synergies and
economies of scale that a trade buyer may.
The management team may struggle with the range of different skills required to lead and run the whole business.
The team may not have sufficient personal wealth to part fund the purchase.
Lack of funding may mean a higher level of deferred consideration is required, so all money will be received on day one and risk will increase.
If an MBO does not proceed, it may damage your relationship with your management team which may have a detrimental effect on the future of the business.

Employee Ownership Trusts (EOT)

The use of Employee Ownership Trusts as an exit strategy has increased significantly in recent years, particularly following the changes by the government to tax legislation in connection with Business Asset Disposal Relief (BADR).

Advantages of an EOT

The Employees are a “readymade buyer.”
Capital gains tax free (i.e. exiting shareholders will receive proceeds in full with no tax deductions).
Management information won’t be disclosed to external parties.
Negotiations on value can be easier and sale process can be faster.
You may be able to retain a minority stake in the business.

Disadvantages of an EOT

The management team may prefer an MBO and could be demotivated.
You may struggle to raise sufficient external funding for the deal.
Lack of available funding or slow cash generation may mean a higher level of deferred consideration is required, which increases your risk.

Family succession

Passing your business onto family members can be an effective way to ensure its future, continuity and legacy. However, sometimes, family succession can be complicated if there are multiple family members and it can also be emotive. However for may owners, there may not be interest from family members to take on the business.

Advantages of family succession

You are creating a family legacy.
Family members may be more loyal to the business.
Family wealth is maintained.
You can mentor and prepare your successor before you exit.
You may have more opportunity to retain some involvement.
It can be less disruptive and provide more continuity.
It can often be a more ‘friendly’ transaction and efficient negotiation.
There can often be more flexibility in the structure of the deal.

Disadvantages of family succession

Succession with multiple family members can lead to dilutedmanagement and a weaker business.
There may be no suitable family members to take over.
The process can be more emotional and may cause family issues.
Your successor(s) may have different goals.
Family members may not have the financial resource of a trade buyer.
More debt to fund the exit may put extra strain on the business.
It may be harder to hand over the reins and decision power to a family member.

It’s important to be honest with yourself and your family. Consider other options if family succession won’t work.

Initial Public Offering (IPO)

An Initial Public Offering (IPO), is the process that companies go through when they decide to 'go public'. They help companies raise money and investments through the selling of stock in the public market.

Advantages of an IPO

Access to wealthy public investors who can help to raise capital.
The IPO process also makes potential acquisition deals easier.
Companies that decide to go public usually observe an increase in publicity because this process exposes them to specialist investors, for example hedge funds, pension funds, and of course the public.
Once your company goes public it will attract a higher calibre of employee talent.

Disadvantages of an IPO

IPOs are expensive to undertake as there is more planning and compliance needed, and other advisors involved.
Maintaining a public company is also more expensive.
Public companies have additional legal, accounting, corporate governance, and marketing costs.
Allowing anyone to purchase a company's shares can be distracting to management, as more corporate reporting and accountability is required. one.

Company Liquidation

A company liquidation is associated with a company facing financial distress. However, it can be considered as an exit solution if there isn't an option to sell the company.

Liquidation is the process of closing the company down and distributing its assets. It is a formal procedure where a limited company is closed down by an appointed licensed insolvency practitioner.

The company's assets are sold (liquidated) and the revenue earnt from the sale of assets is redistributed amongst creditors and/or shareholders.

There may come a time when a company has come to the end of its life and the directors and shareholders wish to close the business. A liquidation facilitates the release of company assets and cash value without needing to find a buyer.