There are business exit options and then there are realistic business exit options. In this video, John Carvalho, president of Stone Oak Capital and co-founder of Divestopedia.com, discusses the key exit options for business owners and how to determine which one might be realistic for your business. Check it out, and note the transcript below.
Today we're going to be talking about exit options for business owners that are thinking of selling.
I meet with a ton of business owners that are looking at selling their business and frankly sometimes I am surprised at the exit options that business owners think are realistic for their business.
Strategic Buyer, Private Equity or IPO
So that's why I wanted to make this video here and just talk about the exit options that are available and that are realistic for business owners. If we're looking at the sale of a business to an arms-length third-party, we’re probably looking at the sale to a strategic buyer. It could be a large multinational corporation or even a local competitor within your business market, or we can look at a sale to a private equity group. Now that can include again a large global private equity group, it can include a local investor group, or it can include high-net-worth individuals.
I would lump all of those different categories into the private equity bucket. And then of course there's the option of the going public which is kind of the [top of the] hierarchy of the exit for some business owners. But really when we look at this, it is an unrealistic or an unlikely option for most mid-market businesses.
If you're getting close or approaching a hundred million dollars in enterprise value then that might be an exit option where I think you can consider an IPO as being a realistic avenue for a business owner to go down. (Read also: 10 Options to Exit Your Business: Transfer and Liquidity Alternatives.)
3 Factors for Determining the Best Exit Option
So there are factors that are going to impact which exit option is most realistic for you. You know I’ve thought about this and I’ve kind of narrowed it down to three different factors.
The first is going to be size, so how big or how small you are, is going to determine the most likely exit option for you. We already talked about an IPO where you have to be at least, I would say, a hundred million dollars in enterprise value to even consider that. But if we're looking at the sale to a strategic buyer or private equity group you know if you're bigger than 5 million dollars in EBITDA, you could be looking at multinational, global strategic buyers or global private equity firms that would have interest or be attracted in your business. If you're lower than that amount you might be looking at more local private equity groups or more local competitors that would have interest and be more likely prospective buyers.
The second factor is going to be the scalability or the potential growth within your business. So if you're in an industry that's experiencing significant growth or you have a technology that can take up a significant market share with an industry then yes, you might be able to get on the radar of a large multinational business as a potential acquirer.
Your Post-Sale Role
The third factor is going to be, I think, the most important and that's going to be: "Exactly what are your objectives as a business owner? Do you want to take some chips off the table and maybe retain some ownership within your business, or do you want to cash out entirely? "
Those two different options are going to really determine which prospective buyer is going to be best for your business. So in the case where maybe you're looking for a partner, you might go down the path of finding a private equity group.
But in the scenario where you just want to retire, want to take your chips off the table, and want to cash out then probably more likely that you should be finding some sort of strategic buyer to really just take on the operations of your business and continue on going forward.
So if, and when you're thinking of selling your business, I think it's really important to look at these three factors. Look at the size of your business, look at the potential growth of your business, and most importantly really think about what the objectives are that you're trying to achieve when you're selling your business.
That's going to help you determine the most realistic exit option, it's going to streamline the process for selling your business and it’s going to help you do it in the most efficient and effective manner possible. (Read also: Solving Exit Strategy Issues to Maximize Profit.)
Thanks for watching, if you have comments please leave them below I'll be sure to get back to you. If you'd like to learn more about business valuations or selling a mid-market business subscribe to our YouTube channel.