M&A: A Practical Guide to Doing the Deal, 2nd Edition

CHAPTER 19 When Is the Best Time for an Owner to Sell a Business?

So far, this book has examined the buyer’s role in the acquisition process. On the opposite side of every transaction is the seller. Indeed, most buyers become sellers at one time or another. The next two chapters concentrate on seller issues. This chapter explores the proper moment for business owners to sell out. The next chapter reviews the tactics needed to carry out a successful sale.

Seller Categories

Sellers fall into five categories: (1) a family business, (2) an entrepreneurial enterprise, (3) a private equity-backed firm, (4) a large corporation implementing a divestiture, and (5) a large corporation giving up control. These sellers share a basic need for liquidity—either they must access more capital to support their respective businesses, their private equity fund is terminating, or they choose to disinvest from their ownership position and reinvest elsewhere. Causes linked to liquidity are many and varied, but the following themes appear repeatedly.

Retirement

Whether driven by an estate tax issue, a lack of management succession, or a wish to smell the roses, the impending retirement of a company’s owners is a common time to consider a sale.

The Target’s Capital Needs

If the target business is prosperous and growing rapidly, it may require capital that is unavailable to the owners at a reasonable cost. An alliance with a bigger, capital-rich concern is appropriate in this instance. Entrepreneurial ...