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Exit strategies
for business owners

As business owners age, they may want to sell their company to realize value for the work they’ve done over their lifetime. Below is a brief overview of different exit strategies and various types of buyers, as well as the advantages and disadvantages of selling to each of them:

Strategic buyer

Larger companies acquire smaller companies as a way to grow, build economies of scale, and increase the value of their business

Advantages:

  • You may receive a better price because the buyer has the ability to take advantage of synergies from both revenue generating opportunities derived from the combination as well as cost-saving opportunities.
  • This is usually the easiest way for an owner to walk away from the business.

Disadvantages:

  • The buyer may enact more operational change including letting go of long-term employees, rebranding the business, or altering the core company culture.
  • Approaching competitors and sharing potentially sensitive information can create some commercial risk if not managed appropriately.
Private equity (PE)

Business owners can sell or partially sell to PE funds, which are sophisticated investors focused on acquiring, growing, and ultimately selling private companies.

Advantages:

  • Collaborating with a PE fund can offer an opportunity to participate in a second transaction if you retain some ownership and work with them to grow the value of the business.
  • A quality PE fund will add operational skill and financial expertise to build value within the organization.

Disadvantages:

  • You may need to give up majority control of the business.
  • The PE fund may bring in new philosophies and enact operational and/or cultural change, which can be difficult if not aligned with how you have historically has run the business.

High-net-worth individual
(HNWI)/family office

Many wealthy individuals have a family office set up to help manage their investments. The family office may purchase a majority stake or buy your entire business.

Advantages:

  • Private equity firms will hold a business for a set period of time with limited flexibility while a HNWI or family office is often afforded a more flexible mandate.
  • Owners can find a family office that shares the same values as they do, which can make for a smoother transition process.

Disadvantages:

  • HNWIs and family offices like to keep their holdings confidential and may not publicize the fact that they own the business, which can make it harder to attract talent.
  • As compared to private equity firms, HNWIs and family offices may not have the same infrastructure and resources to be able to add value to the business post close.

Management buyout

The company’s existing management team will acquire part or all of the company from the owner.

Advantages:

  • The sale process is often simpler and less due diligence is required.
  • The management team will already be familiar with the business and the transition should be easier.

Disadvantages

  • It may be difficult for the prospective owners to obtain financing to buy the business, which could result in a reduced sale price or significant financing being provided by the seller.

  • The handover period may last longer than expected.

Family generational
transfer

This option will allow the business to continue in its current form, but run by the next generation.

Benefits

  • Maintaining a legacy for future generations.
  • Trust in your successors.
  • Business and culture continuity for employees, the OEM, and customers.

Disadvantages:

  • Potential successors might not be interested or have the proper skills to take over the business.

  • There may be friction between family members over who should be in control.

  • Much of the wealth of the family remains concentrated in the operating business as opposed to being monetized.

Initial public offering
(IPO)

An IPO is when a private company goes public by selling shares of the company to investors.

Advantages:

  • A successful public offering can create ongoing liquidity for an owner.
  • Listing on an exchange can enhance the company’s brand profile and reputation.

Disadvantages:

  • It’s an extremely time-consuming and expensive process to go public.
  • There are more compliance and reporting standards as a public company.
  • It can impair or reduce your operating flexibility.
  • An IPO that doesn’t resonate with the market can have a detrimental effect on a company’s brand.

What size of business are we talking about?

As your business matures and develops scale the applicable types of buyers begins to expand driving increased options and valuation.

Illustrative enterprise value ($ mil)

Know your buyer

Fill out the form below to download our guide.

How we can help

There are many buyers to choose from when it comes to selling a business. Our advisors can assess buyers’ objectives and discuss the various options available. We also provide business owners with guidance on preparing for a sale, divestitures, valuations, and tax structuring. Contact us to find out how we can help your business.

www.bdo.ca

As business owners age, they may want to sell their company to realize value for the work they’ve done over their lifetime. Below is a brief overview of different exit strategies and various types of buyers, as well as the advantages and disadvantages of selling to each of them:

for business owners
Exit strategies

Disadvantages:

  • The buyer may enact more operational change including letting go of long-term employees, rebranding the business, or altering the core company culture.
  • Approaching competitors and sharing potentially sensitive information can create some commercial risk if not managed appropriately.

Advantages:

  • You may receive a better price because the buyer has the ability to take advantage of synergies from both revenue generating opportunities derived from the combination as well as cost-saving opportunities.
  • This is usually the easiest way for an owner to walk away from the business.

Larger companies acquire smaller companies as a way to grow, build economies of scale, and increase the value of their business

Strategic buyer

Disadvantages:

  • You may need to give up majority control of the business.
  • The PE fund may bring in new philosophies and enact operational and/or cultural change, which can be difficult if not aligned with how you have historically has run the business.

Advantages:

  • Collaborating with a PE fund can offer an opportunity to participate in a second transaction if you retain some ownership and work with them to grow the value of the business.
  • A quality PE fund will add operational skill and financial expertise to build value within the organization.

Business owners can sell or partially sell to PE funds, which are sophisticated investors focused on acquiring, growing, and ultimately selling private companies.

Private equity (PE)

Advantages:

  • Private equity firms will hold a business for a set period of time with limited flexibility while a HNWI or family office is often afforded a more flexible mandate.
  • Owners can find a family office that shares the same values as they do, which can make for a smoother transition process.

Disadvantages:

  • HNWIs and family offices like to keep their holdings confidential and may not publicize the fact that they own the business, which can make it harder to attract talent.
  • As compared to private equity firms, HNWIs and family offices may not have the same infrastructure and resources to be able to add value to the business post close.

Many wealthy individuals have a family office set up to help manage their investments. The family office may purchase a majority stake or buy your entire business.

High-net-worth individual
(HNWI)/family office

Advantages:

  • The sale process is often simpler and less due diligence is required.
  • The management team will already be familiar with the business and the transition should be easier.

Disadvantages

  • It may be difficult for the prospective owners to obtain financing to buy the business, which could result in a reduced sale price or significant financing being provided by the seller.

  • The handover period may last longer than expected.

The company’s existing management team will acquire part or all of the company from the owner.

Management buyout

Benefits

  • Maintaining a legacy for future generations.
  • Trust in your successors.
  • Business and culture continuity for employees, the OEM, and customers.

Disadvantages:

  • Potential successors might not be interested or have the proper skills to take over the business.

  • There may be friction between family members over who should be in control.

  • Much of the wealth of the family remains concentrated in the operating business as opposed to being monetized.

This option will allow the business to continue in its current form, but run by the next generation.

Family generational
transfer

Advantages:

  • A successful public offering can create ongoing liquidity for an owner.
  • Listing on an exchange can enhance the company’s brand profile and reputation.

Disadvantages:

  • It’s an extremely time-consuming and expensive process to go public.
  • There are more compliance and reporting standards as a public company.
  • It can impair or reduce your operating flexibility.
  • An IPO that doesn’t resonate with the market can have a detrimental effect on a company’s brand.

An IPO is when a private company goes public by selling shares of the company to investors.

Initial public offering
(IPO)

What size of business are we talking about?

As your business matures and develops scale the applicable types of buyers begins to expand driving increased options and valuation.

Know your buyer

Illustrative enterprise value ($ mil)

Our Selling Your Business guide will be released in the spring of 2020. Enter your information below to be notified when it will be released.

There are many buyers to choose from when it comes to selling a business. Our Transaction Advisory Services team can assess buyers’ objectives and discuss the various options available. We also provide business owners with guidance on preparing for a sale, divestitures, and valuations. Contact us to find out how we can help your business.

www.bdo.ca

How we can help