Some of the reasons why you’re thinking of selling might be:
- Financial reasons: To sell while the business is worth the most.
- New opportunities: To start a new project or follow a different passion.
- Personal reasons: To deal with changes like health or family needs.
- Retirement: To stop working and enjoy life after running the business.
When it comes to planning your business exit, there are lots of avenues to explore. If you’re new to this, it will be worth investing in some advice from an M&A specialist who can talk you through some options that could work for you. It’s also worth speaking to your lawyer (or us if you don’t have one!) to see how they can help you prepare for a sale.
The way you approach selling your business is crucial, as it can impact not only the financial outcome but also the future of your team and clients. No deal is better than the wrong deal, so it’s worth investing in the time and advice to weigh up what is best for you, not just financially, but culturally and emotionally!
Three of the most popular ways of selling a UK business can be quickly summarised below:
1.Mergers and Acquisitions (M&A)
What is it?: M&A involves merging with or being acquired by another business. This might include selling to a competitor, or a business seeking to expand its operations, or being bought by a private equity firm.
Key benefit:
- Potential for a higher valuation: Selling to a third party can often yield a stronger financial return. This method allows you to negotiate terms directly, and if there’s interest from multiple buyers, it can lead to a better valuation. If your business has a strong reputation and promising growth prospects, buyers are typically willing to pay a premium.
Key issue:
- Time-consuming and costly: Finding the right buyer who shares your vision for the business can be tough, especially if you want to keep the company culture intact after the sale. The M&A process often takes a long time and involves complicated negotiations. Plus, many sales require you to stay involved for extended periods after the sale (Earn-Out Period), which can make your exit more complicated.
2. Management Buyout (MBO)
What is it?: In an MBO, your company is sold to its current management team. This option capitalises on existing leaders who already understand the business’s operations and culture.
Key benefit:
- Smoother transition: Since your management team is familiar with the business, the transition is often seamless. This can help maintain stability for your clients and staff.
Key issue:
- Lower valuation: While MBOs can be efficient, they typically result in lower valuations compared to a sale to a third party. The management team may have limited financial resources and will often rely on bank funding, which could affect the purchase price.
3. Employee Ownership Trust (EOT)
What is it?: An EOT involves selling your business to a trust that benefits all employees. This option is designed to keep the company’s culture intact while allowing employees to have a stake in the business.
Key benefit:
- Tax-free proceeds: If certain criteria are met, selling to an EOT can lead to sale proceeds that are tax-free for the shareholders, which is a significant financial advantage.
Key issue:
- Complex and costly: Setting up an EOT can be complex and may incur higher professional fees. The process can be time consuming, which is something to consider if you’re looking for a quick exit.
Each exit strategy has its own pros and cons, so it’s important to think them through based on your financial goals and how you see the future of your company. At Hybrid Legal we have extensive experience of helping business and agency owners with advising and managing their options for exit. This article has only touched on a small number of options.
Are you ready for due diligence?
When you sell your business, you need to be ready for the due diligence process. This means making sure your legal and financial documents are up-to-date and easy to access for the buyer’s legal team to review. Since this process can take time, it’s a good idea to start getting everything organised early. By doing so, you can identify any issues ahead of time and make the overall sale smoother and less pressured at the last minute.
Ask us about our Legal Plus service, which can help you manage the costs and efforts of preparing your business for sale long before you’re ready to start the exit process. This service allows you to get organised and set up for a successful transaction well in advance.
If you have any questions or need help figuring out your exit options, please don’t hesitate to get in touch!
Ryan has helped a vast number of businesses protect and control their intellectual property as well as drafting and advising on consumer and commercial contracts.
