An overview of selling part of a business

An overview of selling part of a business

There are a multiple reasons why business owners may consider selling part of their business. For example, they may wish to raise funds to invest in other areas of the business, or it may be because they want to streamline to focus on high performing areas. Whatever the reason, there are a number of options available to decision makers.

In this insight, we take a look at the main routes taken when selling part of a business.

Trade sale and private equity

Selling a portion of a business can be difficult as the valuation of such a stake can be significantly reduced due to the lack of control or influence this sale route provides. This can lead to limited options or interest from buyers looking into this type of transaction. However, a deal could be agreed with a trade party, high net worth investor or some form of private equity investor, depending on the prospects of the business.

A sale to private equity could enable a transaction which allows shareholders to realise some of their investment whilst still retaining a stake in the business. Deals of this type are becoming increasingly common, with many private equity firms keen to support businesses in this way. When looking into this type of transaction, some important things to consider are:

• The number of shares that are going to be offered for sale
• The valuation of the shares
• The current and projected financial performance of the business
• The consistency of management within the business
• The ability of an incoming investor to achieve a return on their investment

Shareholder buybacks and management buyouts

An alternative, depending on the reason behind such a transaction, could be a share buyback or the buyout of management. These transactions do come with caveats and hurdles to surpass, both in terms of the legalities and viability surrounding them but they could be routes that are worth exploring.

When taking the above into account, it is recommended for shareholders to seek support from experienced advisors who have regular contact with this type of transaction. They can scrutinise the advantages and disadvantages of a part sale from the viewpoint of the seller.

Another key aspect which can be overlooked is how the business’ management team is made up:

• Does the business provide full coverage across the key areas including operational, financial, commercial and legal disciplines?
• How will shareholders feel and behave after they’ve seen some return on their investment? Will they have the same level of determination and commitment to the business?
• How will shareholders feel about a new stakeholder to appease?

We are here to help

It is always recommended to consider the best means of selling part of a business. Private equity investments are a viable option, with some trade parties often prepared to consider this type of arrangement assuming the deal is commercially and financially viable. In the case of management buyouts, the capital available and the ability to use business debt capacity should be considered before going down this avenue.

If you are considering a part sale or have been approached by a buyer already, then please contact a member of our specialist team, or get in touch with your usual Azets advisor.