Generally, a trade sale will generate a larger consideration than other exit options, and the reason is mostly related to the usual obvious synergies in a trade sale, either a vertical buyer or a horizontal one.
The synergies range from cost-cutting in central services to cross-selling opportunities, or alternatively, just the opportunity to remove a competitor. However, not all businesses sell or are even saleable in the first place. Common reasons for this include a deal structure or value that cannot be agreed upon, or the business being too reliant on the owner; however, in reality, this could also be for many other reasons.
So, what can the vendor do if their trade sale either falls through or never gets off the ground?
There are various business exit options the vendor can consider, including:
Wait and Relaunch
If the vendor does not require an immediate exit, it may be better to wait and relaunch in the future. It is common knowledge that markets and appetites can change quite quickly, and business owners may have a better chance of selling their business once the market begins to fluctuate in favour of the industry in which they operate.
Consider a Management Buyout (MBO)
A management buyout, where management acquires the business from the owners, is a viable succession planning option for businesses with a key management team with the desire and financial appetite to run the company.
Consider A Private Equity Deal
You may consider opting for a Private Equity (PE) deal. While this is a possible exit option and could be extremely beneficial due to the significant financial resources that PE companies possess, the feasibility of this will depend on the size of your deal. Modest deals are unlikely to attract interest, and PE deals often come with strict criteria regarding exit options.
Consider an Employee Ownership Trust (EOT)
A strong business exit option for those seriously prioritising succession planning is transferring your business to the staff via an employee ownership trust (EOT).
EOTs are relatively quick to implement, as long as you meet the conditions required, and it’s much more cost-effective in terms of professional advisers than any alternative. Additionally, an EOT provides tax-free consideration for the vendor and ownership passes to all staff at no personal cost.
The vendor also has the option to stay in the business and can determine their own long-term involvement. The Trust company (of which the owner’s shares get transferred) can gear up against its assets to fund a transaction if desirable, or the vendor can support the payment through a loan note. Arguably, the biggest advantage is that, with an EOT, the business retains talent and rewards those staff who have created value. As a result of this, PR opportunities for a business moving to an EOT can be exponential.
Conclusion
There are many different options to consider, and we know that this can be overwhelming for a business owner simply wishing to take the right path for themselves and their business.
If you would like to discuss your succession planning further, and which business exit option may be right for you, please get in touch and we would be happy to discuss your options and the processes.