Selling part of your business

For some business owners, a full sale of 100% of the share capital of the business is not a preferred option – but for those in that situation, some options do exist

CREDIT: This is an edited version of an article that originally appeared on Insider Media

Selling a minority shareholding can pose challenges, as the valuation typically receives a notable markdown due to the lack of control associated with such a position. Consequently, there might be limited interest from potential buyers or sellers to engage in such a transaction. However, depending on the business’s profile, outlook, and structure, opportunities could arise for agreements with trade parties, high net worth investors, or private equity investors.

Another viable avenue, contingent on the transaction’s rationale, involves share buybacks or management buy-ins/outs. These avenues, though complex legally and practically, warrant exploration. For certain SMEs, private equity sales can facilitate transactions, allowing shareholders to cash in on their investments while retaining partial ownership. A burgeoning market for such deals exists, with various equity firms enthusiastic about supporting businesses in this manner.

Key considerations encompass:

• The share quantity for sale and its corresponding valuation.
• The business’s current and projected financial performance.
• The consistency of the management team.
• The incoming investor’s capacity to yield returns.

Navigating these aspects benefits from experienced advisors well-versed in these transactions, who can view them from the perspective of potential buyers. Crucially, advisors assess the timing of future transactions to align with shareholders’ goals, while evaluating the returns they might yield.

Leadership team composition is another vital facet. Does the business possess comprehensive expertise across crucial areas like operations, finance, commerce, and legality? How will shareholders adapt to post-cash realisation? Will their dedication waver?

Similarly, accommodating new stakeholders with anticipated board-level involvement requires consideration of their influence and performance expectations.

In essence, some business proprietors can engineer a series of transactions to unlock value from their sustained efforts. Identifying the optimal approach and proceeding cautiously is crucial. Beyond private equity, trade parties may also be open to such arrangements if sound commercial and financial foundations exist. Management participation holds potential, contingent on available capital and the business’s debt capacity.