Are you looking to move on from your business? Whether you want to exit gradually or immediately, you have options if your way out is to sell, including selling a minority interest, a majority interest, or the entire business.
Sell a minority interest.
You don’t have to sell your business all at once. You might not even have to sell most of your business. You might want to consider selling a minority, non-controlling interest.
One reason for not selling a majority share of your business is that you are not ready to surrender control to someone else. Another is that you might not be able to generate sufficient money to achieve your goals as outlined in your personal financial plan. Most often, an owner selling less than 50 percent of a business is transferring the business to people they know, family members or management team members, as part of an internal succession plan. But you might also look to sell a minority interest to an outside party.
When or why would an outside party want a minority interest in your business? It can be risky business for an outsider. What if someone came to you and asked if you would like to buy 30 percent of a business you would, essentially, have no control over. You wouldn’t be able to make meaningful decisions because you wouldn’t have enough votes. You wouldn’t have control over when or if you would receive distributions. At the least, you’d want to know the majority owner well, because that person would be determining the fate of your investment and could essentially ignore any or all of your input. There are legal protections for minority shareholders, but if you get to that point, you’re probably not feeling good about your investment.
Usually, the owner of a minority interest, insider or outsider, cannot sell to an outsider. The other existing shareholders will have the right of first refusal to buy back those shares. If the minority shareholder decides to sell, they would have to offer their shares to the other current shareholders—or their heirs if they are deceased. Even if an interest purchased as an outsider could be sold to another outsider, minority interests in privately owned businesses generally aren’t attractive to most outside buyers.
Still, there are some private equity groups and family offices that will consider buying a minority interest in a business. They could look at it as an investment in you and your management team. They might see a well-run business with potential to grow with some additional resources in the form of management and financial support. Such investors often look to buy more shares of the company as the business grows, and possibly to buy you out entirely at some point. As such, the investors are willing to buy a minority interest to get their foot in the door of a promising longer-term opportunity. However, there are substantially fewer of those types of buyers than those who want a majority or controlling position.
Sell a majority interest.
Most often a buyer will want to own a majority interest in your business. They consider having control over a company essential to running and growing it. However, most majority-interest buyers do not purchase 100 percent of the business. For several reasons, they want you to continue to own some part of the company, usually between 10 and 30 percent:
Assuming you get the right buyer or buyers, selling a majority interest can be an excellent way to leave your business. Similar to selling a minority interest, you can take some chips off the table now and might get an even better value for your remaining interest in a few years. If you are not ready to leave the business entirely, perhaps because you cannot afford to or because you still are driven to take your business to a next level, selling a majority interest but not all of your business could be an attractive option.
Sell it all.
Sometimes a buyer or buyers will want to purchase 100 percent of your business. Some strategic buyers may want to buy it in its entirety to accommodate their growth plans. They might already own several businesses in your industry and want to add yours to their portfolio or fold it into another of their companies. As a minority owner has rights, and can be a fly in the ointment in several ways, they might want full reign to do whatever they want, whenever they want in order to execute their plans. They will still want a smooth transition, and for you and your family to continue to speak well of the business after you have sold, but they might not need or want you to be involved in running the business.
You might be the driver of a sell-it-all option because you want out now or you don’t want to own what you won’t control. Maybe you want to move to a better climate, or family health issues prevent you from operating in the same capacity as in the past. Maybe you want to free yourself from risk of loss or litigation, especially if someone else will be making the business decisions. Whatever reason you no longer want ownership, you should make it known to potential buyers that you are presenting the business as an all-or-nothing opportunity.
Each business is unique, and some will be easy to transfer to new owners while others will take considerable time and effort. With more than three decades in financial services, my goal is to help business owners understand they might have more options than they realize. After all, you are the seller. If you put together a competent transaction team and develop a thoughtful plan and process, you will increase your chances of getting the best price and terms from the sale of your business.
IMPORTANT DISCLOSURES
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
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