The preparation required to structure for succession will be dependent on the exit option selected. While it is best not to be wholly reliant on one potential exit, many items and actions will be required to prepare for all exit scenarios.
The succession options can be split into external and internal alternatives which are detailed below. The selected options will be based on the factors outlined below, and likely demand for the business:
- External Options include:
- trade buyers - primarily strategic acquirers including competitors and suppliers to gain market share, access new customers in new markets and/or the vertically integrate the supply chain. Trade sales will often result in the greatest financial reward to owners, with fewer obligations post sale.
- Initial Public Offerings - the sale of shares in the company to subscribers prior to a listing on the ASX (or alternative stock markets).
- Private Equity - the purchase of all/part of the business by a private equity fund. The purchase by private equity will typically require the business to have significant growth opportunities and an established or identified management team to operate the business.
- Internal (evaluating MBOs)
In the event that the external options are not appropriate, and quite commonly for professional services/consulting firms, existing management or new recruits may be the best option for owners to structure an exit.
Identifying the likely succession option(s) should be incorporated in the business plan to ensure that appropriate company structures and operational structures are in place, and that appropriate staffing is implemented to maximise the proceeds of sale and probability of success.
Regardless of the succession route, there are a number of key steps that owners should take to maximise the chance of a successful sale, particularly around the handover of customer relationships, documenting policies and procedures and implementing customer and supplier contracts.
If you are considering the sale of your business please contact Matt Swan or another member of our Corporate Finance team for a confidential discussion.
This article is part 3 of a 7 part series. Click to read the previous entry: Succession Structuring.