Whilst you were lying by the pool (probably sending work emails), did you think about your exit strategy?

13 August 2018

As the holiday season is now in full swing in England & Wales and coming to an end North of the Border, time away from your business may have offered you an opportunity for reflection and to consider the Bigger Picture (in between dealing with the “emergency” calls from the office of course).  You might have ignored the cabin crew pointing out your nearest exit on boarding your flight to the sun, however, you may have taken the time to consider how and when you might exit your business in the future?  Ok, maybe you didn’t have time.

If the above had crossed your mind over the summer break, or even if you were too busy navigating theme park queues whilst replying to the most recent “urgent” email, the following is likely to be of interest to you.  For those business owners who are approaching or within several years of your target retirement age, it is important to consider your exit options at the earliest stage to ensure the best outcome for you and your family (the sales price is only one part of the equation).  Perhaps you are decades away from retirement, again, I would advise you read on. 

If you are a private business owner, you should regularly be reviewing your ownership position to decide whether your commercial objectives can best be met by continued ownership of your business or sale of part or all of your business.  There are a number of reasons why a business may be sold, including:

  • Retirement or illness;

  • No obvious family succession;

  • To realise some capital for re-investment into other projects;

  • To benefit from a significant market development, such as a new piece of technology;

  • Inability to develop your business further due to a lack of capital; or

  • Simply receiving an offer that is too good to refuse

Exit plans

Whatever your motivation, the decision to sell your business is one of the most important financial decisions you will ever make.  It is perhaps surprising then that many private business owners don’t plan their exit and are not aware of the various ways in which they can dispose of their business.  Those with families will have considered family succession and others will think that the only exit route is a ‘trade sale’.  However, depending on the specific circumstances, there are likely to be a number of exit routes available to the vendor and exit strategy planning is vital to ensure that the optimal outcome is achieved in terms of sale price and personal aspirations. 

Exit options

The primary exit routes available to private business owners looking to dispose of their business are:

  • A third party sale (‘trade sale’);

  • A management buy - in  or buy – out (‘MBI’ or ‘MBO’);

  • Family succession;

  • A public flotation (“IPO”); or

  • A sale to the employees of the business.

By far the most popular exit route for vendors is to pursue a trade sale, although high quality management teams backed by aggressive funders can provide stiff competition to the trade players.  The family succession route is now becoming less prevalent with many heirs either not interested in or not capable of taking over the running of the family business, and whilst an IPO can provide access to additional capital it does not necessarily provide an immediate exit for the owners and the increased public scrutiny and regulatory requirements can be unsettling to the traditional owner/managed business.  Selling a business to its employees is becoming a more popular route following the introduction of the Employee Ownership Trust via the Finance Act 2014 (albeit from a low base).  There are currently c.350 employee owned businesses in the UK, however option will not be suitable for every business.

Exit strategy

When planning their exit strategy, private business owners, in conjunction with their professional advisors, must ask themselves; “What is the best way for me to maximise my financial return and my personal aspirations when selling my business?”.  Most importantly, the choice of exit strategy adopted and timeframe to execute potentially make the difference between disposing of the business at a fair price and not being able to dispose of it all.  The notable point for advisors is that the structure must serve all parties best interests.  From a vendor’s point of view, implementing a considered and effective exit strategy can not only maximise the sales price but also reduce the amount of time the vendor is required to stay in the business post-sale and minimise the amount of the sales price that is deferred post-sale or payable depending on the future performance of the business.  It is simply not possible to offer a “standard” deal to every client and therefore advisors must strive to familiarise themselves with the vendors, asking the important, sometimes difficult, questions in order to attain the most suitable exit strategy.

Our experience has shown that vendors who approach the sales process in a controlled and structured way are far more likely to achieve a more satisfactory result on completion of the sale.  The earlier this exercise is undertaken the more exit options that will be available and the more likely that the optimal outcome will be achieved in terms of sale price and personal aspirations.  Consideration should be given to all exit routes, as a variety of unique factors will influence the final strategy that should be adopted by the vendors. 

It is never too early to start thinking about selling your business and you should engage with experienced corporate finance advisors who have capabilities to support you in the initial planning stage through the efficient and controlled delivery of the transaction.

For more information please contact Michael Edwards (Michael.edwards@aab.uk) or your usual AAB contact.

To find out more about Michael and the Corporate Finance team, click here

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