One of the most popular routes to exit a business is by selling your business to a third-party trade buyer in a trade sale or via a business auction arrangement. You can sell either part of your business/assets or the whole as a going concern including shares and liabilities.
Often a trade sale means that you can withdraw from full time activity in the business after a handover period. There may then be an opportunity to become a consultant to the new firm, or just step back and let the new team take it forward.
Potential trade buyers fall into one of two categories:
- A strategic buyer will value the synergy between the two businesses and may be already operating in the same industry or sector.
Advantages of selling to a strategic buyer may include;
- A higher price for your business.
- The option to exit your business completely, after a handover or earn-out period.
- A reduced but important role in the new business.
- An enhanced market position and share value of the new business.
- A quicker selling process if the potential buyer knows the characteristics and quirks of the industry, potentially making the due diligence process quicker.
- The buyer being known to your customers and suppliers. This could make the transition to the new business less disruptive and less damaging to sales.
Potential disadvantages could include:
- The business ceasing to operate smoothly and efficiently during the sale process, potentially having a negative effect on trading.
- The potential negative impact on performance, morale and attendance of the senior management team if they know that their roles are at risk.
- Customers may not like the potential buyer and moving their business elsewhere.
- The sale may having a negative effect on company value, depending on how the market sees the move.
- The risk that if the sale doesn’t go ahead, your company information has potentially been provided to a competitor.
- A financial buyer may have lots of cash to spend and be looking for an acquisition that will provide a good return in the short-to-medium term. They are unlikely to have any industry expertise and will not be looking for synergies. Rather they will be looking for undervalued businesses to which they can add value. Funding for the purchase is likely to be a combination of debt and equity.
Selling to a financial buyer can have some advantages:
- The buyer may be able to offer some innovative or flexible financing arrangements for the sale.
- You may retain a key role in the new business for a significant period of time.
- Business operating disruption is kept to a minimum.
- Employee morale could be less negatively affected than in a sale to a strategic buyer.
- The existing senior team is likely to be stay with the business.
- There may be future opportunities for growth by additional acquisitions.
Potential disadvantages of selling to a financial buyer can include;
- You’re likely to stay involved in the business for at least a year after the sale.
- The buyer’s lack of expertise in the market could mean that the due diligence process will take longer and delay the actual sale.
- Cash to fund growth may be limited due to high gearing.
- Post-acquisition financial reporting will be very detailed and regular.
What it means for the business
An experienced finance director will be an integral part of a senior management team in any type of trade sale. They will add credibility to the team and ensure that the due diligence process runs smoothly.
Artemis Clarke helps business owners find finance directors, on a full or part time basis, that have the experience to support them. Not just to help them survive, but to help them thrive – whatever their business goals. This can allow a business to benefit from the experience of a finance director for a specific period of time, or project, without the significant financial commitment necessary for a full time employee.
Speak to us about how the right financial help could make a difference to your business. Call 0117 244 1891 today.
