Today, owners of well managed companies have more options than ever before for liquidity, growth capital, or an outright sale of their enterprise. It's a seller's market.
Selling a minority stake might be the best option in this market. That way you can maintain ownership control and minimize personal financial risk.
The reasons the time is right are three-fold: An abundance of capital is available in the market, from both debt and equity sources; there are fewer high quality companies for sale; and a minority stake in a successful, growing company still generates a nice return for investors. Here’s what it takes to make it happen:
Decide to diversify your personal wealth.
Many business owners have a large percentage of their personal wealth tied up in their company. Selling a portion of the company enables owners like you to cash in on some of you hard work and re-invest the cash in diversified, more liquid, long-term investments that will be available for you and your family.
Determine what percent you want to control.
The owner's personal and financial goals drive how much of the company is sold. If the goal is to retain control and still be very active in the company, you would sell a minority interest based upon the amount of cash you would like to take out of the company for personal reasons. This strategy also enables you to still control the direction of the company and sell the balance at a future date. Minority sales (less than 50%) normally involve private equity groups seeking to invest in profitable successful companies.
If the your goal is to retire or totally cash out of the company, you would sell a majority of the company or potentially all of the company. This type of sale enables you to capture a majority of the value in the company, and it also relieves the you of major management duties. If you are not ready to leave the helm, this option may not be for you and a minority sale will be better.
Designate funds to grow your company.
Many middle market business owners simply need an influx of cash or specialized expertise to take the company to the next level. A private equity group can provide the cash needed to expand into new markets, purchase new technology or equipment, or hire the additional sales force needed to grow the business. This can be your way to take your business to the next level.
The value of your business is determined by what investors are willing to pay. Currently, investors are willing and eager to invest in successful companies and the inventory available to them is limited. So, they have adapted to respond to the needs of owners. Minority ownership transactions are just an example of the adaptations they have made. Just as you see potential in the future they see opportunity as well.