When planning an exit or sale of your business, there are several traditional exit options to explore. Each option has its own considerations for and against, and some may be more suited to you and your business than others. Here are the main options:

• Trade Sale
  

• Management Buy-Out (MBO / VIMBO)
  

• Private Equity Sale
  

• Employee Ownership
  

A key starting point for considering the path you wish to go down is understanding what you want to achieve from the exit, both personally and in terms of the legacy of the business after you leave. Whatever route you choose, it is essential to prepare your business for exit to ensure it is ready for the chosen path.

Trade Sale: Exit to a Strategic Buyer

In the simplest terms, this is Company A buys Company B, and in this scenario, you are Company B. This type of deal will see another trading entity wanting to acquire your business to help them in their own growth.

Acquisition can be a great way of accelerating growth by adding additional services or products, gaining a new bank of clients, benefiting from new staffing resources or skills, or geographic expansion. Others will simply want to increase their market share.

Typically, a trade sale will be executed by either a Share Sale or an Asset Sale. A share sale is where the buyer will acquire the share capital of the business, which includes the trade and assets of the business. An asset sale is where the buyer will buy all or some of the assets within the business (whether contracts, physical assets, property, etc.), without buying the shares and wider obligations of the business.

Depending on your sector, there may be more M&A activity than in other industries. For example, sectors that have multi-year contracts (Facilities Management, IT & Telecoms, etc.) or have an 'ARR' annual recurring revenue model (SaaS, Tech, etc.), tend to be ripe for acquisitive businesses looking to acquire.

Most sectors will enjoy a degree of acquisition activity, and so a trade sale is often a default consideration for business owners.

The downside of a Trade Sale? The most common concerns we hear are that when a third-party buyer is involved, the sale price can often be a compromise position. For this reason, it becomes imperative to have an accurate valuation carried out from the outset and to select advisors who will defend the valuation to achieve the best possible deal structure.

The other frequent concern with a Trade Sale is the potential for centralisation of costs and resources to the parent company, and thus the potential to see changes to personnel post-acquisition. While this is a potential consideration where role duplication may exist, an acquisition is usually based on the buyer wanting to add the strengths of the target business, and so it is just as likely the buyer will not want to make changes. The key here is to work with advisors who understand your legacy desires for the business and will seek out buyers who align with those principles, increasing the chances of a harmonious alignment post-transaction.

Management Buy-Out: Continuity and Legacy

A Management Buy-Out (MBO) is where the existing management team within the business seeks to acquire the business from the existing shareholders.

Other terms often associated or used around Management Buy-Out are:

• VIMBO (Vendor-initiated management buy-out): This is where the existing owner offers the management team the opportunity to acquire the business.
  

• MBI (Management Buy-In): This is where an external manager or management team purchases a controlling stake in a company.
  

The common MBO usually originates from the desire and ambition of the existing management team, and they will often approach the existing owner about purchasing the business from them. It can also happen that a VIMBO is the stimulus for an MBO, where the vendor shares the idea with the management team.

An MBO can often be a highly desirable form of succession as it can offer great continuity for the business, help to maintain the business legacy with little disruption, and it can often feel like a natural progression for those who are already vastly experienced and entrenched in the business to step up and lead the business into the future.

The management team will need to decide how they will purchase the business from the vendor, and so will often need to obtain funding to structure the purchase.

There are several funders happy to fund Management Buyouts, with many having a dedicated MBO funding package.

However, it is worth noting that a funder will often require the management team to invest some personal funds into the transaction, which can sometimes lead to difficulties.

So, while a Management Buy-Out might often be considered an ideal route for succession, it is key that the management team is keen to drive the opportunity forward and prepared to make financial commitments to make the deal happen.

Private Equity Sale: Growth and Strategic Support

Private equity buyers are usually financially motivated institutions looking to help scale a business by both acquiring share capital and committing to support and invest in the business to support growth, with the intention to exit at a later stage for a profit on the initial investment, in line with the growth they have helped the business achieve.

Private Equity could be desirable to an owner who wants to remain involved in the business and continue their current leadership role, especially if they feel there is a current growth block that could be unlocked by a capital or strategic investment.

A PE deal could be considered relatively simple and of little disruption compared to other sale routes, as it is largely 'business as usual' in terms of the running of the business.

It is common to expect a senior person from the investing party to take a seat on the board, to help steer the shared vision, and can often be a strategic help by expanding the expertise around the table.

While Private Equity may not be a full exit, it is worth considering that those who invest are usually looking to help support growth with a view to a future exit, and so it could be considered a way for an owner to exit in tranches over a period of time, but with the intention of increasing share value over that period.

Most Private Equity investors will work to a preferred investment structure in terms of the type of business they wish to invest in, be it sector, service provision, revenue size, EBITDA, geographical location, etc.

A corporate finance advisory business, such as GS Verde, can help you understand whether your business and industry is likely to attract Private Equity as an investment or exit route.