We talk to business owners every day who plan to exit their companies to a third party. They believe they will get more cash both up front and overall than if they sell to family members or employees. They also believe there is less risk selling to a third party than to company insiders. Are they correct?
As diplomatically as possible, we suggest that they just might be dead wrong. Here’s why:
- Sales to third parties are less risky than sales to insiders only if a business can be sold for all cash, which is unlikely. They can also be less risky if there’s simply no time to implement a carefully designed sale to an insider.
- Selling to a third party requires a third party wanting to buy. In a difficult M&A market, being in an attractive market sector is more important than ever. Companies engaged in power, alternative energy, health care, medical services and healthy-living products will have an easier time finding buyers, while those engaged in construction, retail, real estate, automotive and consumer products will find it much more difficult, to attract a buyer in today’s marketplace.
- Waiting involves risk. We suspect that some owners hold to the belief that there’s little risk in waiting for a third party buyer because it provides one more excuse to avoid the exit planning process. While waiting, you could find a dormant M&A market, no buyers for your industry, your business and/or the economy in decline.
Instead of falling subject to these uncertainties, you could instead control of your exit by creating an exit strategy that allows you to:
- Choose your buyer;
- Name your sale price;
- Control ownership until you are fully paid; and
- Shift the burden of the company’s future performance from you to the buyers
This is the first of a two-part series on third party versus inside buyers for your business. Next week we will take a look at why selling to employees or family – people on the inside of your company – may prove to be the wiser exit planning strategy.
