Some business owners, particularly those who founded their companies, may find it hard to give up control to a successor. Maybe you just cannot identify the right person internally to fill your shoes. While retirement is not in your immediate future, you know you must eventually step down.
One potential solution is to find an outside buyer for your company and undertake a long-term deal to gradually cede control to them. Going this route can enable a transition to proceed at a more manageable pace.
Time & capital
For privately held businesses, long-term deals typically begin with the business owner selling a minority stake to a potential buyer. This initiates a tryout period to assess the two companies’ compatibility. The parties may sign an agreement in which the minority stakeholder has the option to offer a takeover bid after a specified period.
Beyond clearing a path for your succession plan, the deal also may provide needed capital. You can use the cash infusion from selling a minority stake to fund improvements such as:
- Hiring additional staff
- Paying down debt
- Conducting research & development
- Expanding your facilities
Any or all of these things can help grow your company’s market share and improve profitability. In turn, you will feel more comfortable in retirement knowing your business is doing well and in good hands.
Benefits for the buyer
You may be wondering what is in it for the buyer. A minority-stake purchase requires less cash than a full acquisition, helping buyers avoid finding outside deal financing. It also is less risky than a full purchase. Buyers can, for example, push for the company to achieve certain performance objectives before committing to buying it.
Integration also may be easier because buyers have time to coordinate with sellers to implement changes — an advantage when their information technology, accounting, or other major systems are dissimilar. In addition, in a typical merges and acquisitions transaction, decisions must be made quickly. But under a long-term deal, the parties can debate and negotiate options, which may improve the arrangement for everyone.
What is right for you
There are, of course, a wide variety of other strategies for creating and executing a succession plan, but if you are leaning toward finding a buyer and are in no rush to complete a sale, a long-term deal might be for you. Our firm can provide further information.