• Date

    14 Oct 2020
  • Category

    Corporate Finance

Know your options…

When considering your future exit from a business, to retire or pursue other interests, it is never too early to start planning. Understanding the different routes, with their implications and associated processes, will provide you with options and therefore the best opportunity of achieving the desired outcome.

The main options are outlined below:

Trade Sale

The Purchaser is frequently in the same or a complementary sector, seeking to grow. Potential synergies increase the future profit for the Purchaser which can influence value. The Vendor should be comfortable that the acquisition is properly funded, with previous acquisitions providing reassurance.

Management Buy Out (MBO)

An MBO works well for stable, mature SMEs which would benefit from internal knowledge but new impetus. External funding could be debt or equity, with the Vendor commonly providing funding via deferred consideration. Flexibility and compromise will be required from both sides with management teams, having existing knowledge of the business, often best placed to successfully complete a timely transaction and continue the business.

Purchase of own shares (POS)

Where Vendors’ successors are already shareholders and the business has cash and profit reserves, a POS could be a simpler, effective way for a shareholder exit, particularly when external funding is not required. Avoiding external funding may be prudent in uncertain times but tax clearance is required to protect the Vendors’ position, and this needs professional advice.

Other options

Other exit options include:

  • Merger with another company;
  • Sale to an external management team (Management Buy In); and
  • A combination of the mechanisms above.

The impact of COVID-19 on transactions appears to depend on the sector, but MBO activity remains strong in SMEs, particularly where the management team have helped the owners meet the recent challenges.  However, we have also seen an increase in transactions that integrate supply chains, particularly in sectors where there are subcontract relationships and therefore an increase in trade sale activity.

Advisors can help you understand the options available and ensure the best outcome for you and your business. If you wish to discuss potential exit structures, contact the Azets Corporate Finance team.

About the author

Katherine Broadhurst Photo

Katherine Broadhurst

Partner Cardiff - Lime Tree Court
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