Bad news: There are about 160,000 US-based privately held companies with sales between $5 million and $350 million. Of those, an average of only 9,300 (6%) are sold each year (The Exit Strategy Handbook, p. 28).
Good news: There is significant investor money available today to purchase privately held companies.
Selling objectives: With rare exceptions, companies do not automatically find investors that buy them. Selling a company takes hard work. It requires owners to pre-determine the objectives of the sale, such as:
- Net cash after taxes and debt service
- Whether or not the company’s employees are an important part of the sale
- Family members and their roles with the buyer
- Whether the transaction will be a net cash or a carryback note
Preparation: A well-prepared business gets more offers, and usually better offers, than does a less-prepared one. A well-prepared business also advances the sale more quickly (The Exit Strategy Handbook, p. 69).
Buyer’s confidence: Chances are your business can be improved in ways that enhance a buyer’s confidence. The more comfort and trust the buyer has in you and your business, the fewer opportunities a buyer has to question various aspects of the business and negotiate a lower price (The Exit Strategy Handbook, p. 69).
The right buyer: There are many types of buyers of privately-held companies. Each buyer has different purchasing objectives and prices. Some of the possible buyers might include:
- Management (MBO)
- Employee Stock Ownership Plan (ESOP)
- Private Equity Group (PEG)
- Initial Public Offering (IPO)
Building a team: Your first step should be to assemble an outstanding professional team to advise you. Most business people select their professional team on the eve of their sale. This is far too late in the sale process. By selecting your professional team several years before the target date for your sale, you can obtain their guidance in the presale years as to methods of minimizing the obstacles (The Exit Strategy Handbook, p. 31).