“Our passion is helping ordinary business owners achieve exceptional business exits”
Common Exit Strategies Value Pyramid
Liquidation - Close the doors of the business, sell any plant, equipment and property then use the proceeds to pay out liabilities. This method yields zero value for goodwill.
MBO or Family - Transfer of business to staff or family member. Often complex, emotional and drawn out over years. Yields the least value of all sale strategies.
Trade Sale - Selling the business at arms length to either a financial or strategic buyer. This is the most common exit strategy for small to medium business.
Mergers & Rollup - Consolidates the earnings of multiple businesses to create new value through scale and either financial or strategic synergies.
Public Listing - Increased liquidity of equity and an active market provides immediate value uplift. The most expensive and complex of all exit strategies.
How Control Impacts Value
The price a buyer is prepared to pay for the equity in the business is contingent on the level of control acquired. All other things being equal a small minority interest is worth less as it is not easily marketable (not easily converted to cash) and gives the buyer no control over cash flow or strategic decision making.
By contrast buyers will value the acquired equity much higher if it comes with control over the cash flows and strategic direction of the business. (i.e greater than 50% share of equity usually gives control over these aspects). Equity with control rights is also easier to sell and therefore it is more liquid and worth more.
How Buyers Impact Value
Businesses are typically valued at Fair Value. By definition Fair Value is the theoretical amount the business should change hands for in an open market between a willing buyer and a willing seller. However, the buyers motivations (and sometimes the sellers as well) can heavily influence the price they are prepared to pay.
Financial buyers are motivated by the current business model and the reliability of the future cash flows. Strategic buyers however often pay a premium for the business as they can leverage your business to enhance their current business. We recently helped a seller achieve a 16x multiple due to strong strategic synergies.