Getting 'Poised for Exit': Understanding Buyer Strategies
Our #PoisedforExit episode today featured Russ Fleming, partner at Baker Tilly in Minneapolis. Russ grew up with an interest in accounting and gained a great deal of exposure to it from his father (a CPA) whose clients were real estate and construction industry business owners. Thus, Russ acquired many clients in these industry sectors and is sought often for his expertise.
We talked a great deal about deal structure in today's environment, and how different structures can impact a seller's outcome in a transition situation. There are many ways a person can sell a business.
It all starts with a seller identifying their needs and wants. Asking the all-important question "what do I want to get out of this?" and "what's the best path to my payoff?" Some sellers will receive a cash offer, though not very common, which eliminates the risk of future payout. Some will opt for a lucrative offer from a Strategic Buyer, which can cover all the bases if structured correctly and with the right advisory expertise.
A Private Equity buyer can afford a seller with a second bite of the apple; selling a portion to investors and the remainder at a later date. Choosing Private Equity would give the business the financial boost it needs to scale beyond what the seller was capable of doing on his or her own. As long as the seller goes into it fully educated it can be a great win-win combination.
Regardless of the seller's path to exit, Due Diligence processes will come beforehand. Russ said that a seller should conduct their own Due Diligence as much as a buyer would do. Baker Tilly offers this service to sellers, whereby they analyze the buyer's means to fully execute the offer. Russ recommends conducting a 'financial stress test' on the buyer, which is one way Baker Tilly measures the capability of the buyer to successfully run and grow the business.
When preparing for an internal sale, whether family or non-family, Russ recommends setting up some kind of comp plan that sets up a future Nest Egg for the buyer to accumulate the cash needed for down payment. This serves two purposes. First, it formally retains the key person or persons, and second, provides a feasible way for the seller to be paid and the buyer to acquire. Taking the time to set this up well in advance of a sale is highly recommended.
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