Top 5 Sell-Side Advantages of M&A

It happened. The idea that you dreamed up years ago while sitting in your garage has blossomed into a sustainable business with significant market value. That leap of faith that you took has resulted in a major asset that gives you consistent returns and financial security.

Now, as you sit behind your desk, you diligently peer over a recent email from a company that has expressed interested in acquiring your business. You don’t know what to think or how to respond. Although this business is your brainchild, you have labored for years to achieve growth and think that this could be the ultimate return you were looking for.

Related: Top 5 Buy-Side Advantages of M&A

What should your analysis be? How do weigh the pros and cons?

Mergers and Acquisitions have been used as a growth and/or exit strategy by founders and CEO’s since the 1800’s. As a business owner, there are many advantages to being acquired. Whether you are looking to fully exit the business or just drastically diminish your roles and responsibilities within the company, there are many different ways to structure the acquisition so that you can achieve your end goal.

Here are the top 5 advantages to selling your business (in no particular order):

Asset Liquidity

As the owner of a valuable business, you may have significant net worth. The only problem is that your net worth is probably predicated on the shares that you own in your company. While the value is there, having shares in a closely held company means that that value is highly illiquid – meaning it is an asset that cannot be easily exchanged for cash.

Selling your business gives you access to the most liquid type of asset there is, cash. Having cash on hand allows you to diversify your investments and increase your portfolio of holdings. This diversification reduces your overall risk and vulnerability to market volatility. It also gives you funds to take that long-awaited, much-needed vacation you’ve been planning for.

Reduce Responsibilities

Let’s face it, we all get tired at one point or another. As a business owner it is imminent that the daily hustle and bustle of dealing with operations will eventually wear you down. Depending on where you are in your career, you may not be ready to fully exit but you may want to become a role player and reduce your responsibilities to the company. M&A serves as a perfect opportunity for you to stay connected to the business, maintain some shares, and continue working while giving you a much more relaxed and low-stress lifestyle.

Retirement Transition

If you are a business owner that has reached the age of retirement, you want to find a way to make a clean exit and receive the value you deserve for your hard work. Selling your business gives you an opportunity to not only make a clean break but to also shop around for buyers who are willing and able to pay you what your business is worth. Unless your company is doing very well financially, cashing-out by having the business buy back your shares and transferring the business to someone internally may put the company in a difficult financial position.

Company Viability

If indeed you are ready to retire you have two options: appoint someone as your successor and have them transition upon your retirement, or sell to an outside Buyer. If you have not identified a worthy successor for your organization, you could be putting your company’s long-term sustainability in trouble by not soliciting an outside Buyer. In this case, selling to an outside Buyer has the ability to ensure greater viability for your company.

Related: Generosity. What’s the Why?

Through the vetting process you can identify a Buyer with significant industry experience and knowledge. You have the power to select a Buyer that can bring the necessary resources and team to continue the operations you have built up. After all, this is the dream that you have labored over and you don’t want to see it diminish after you have left the operations.

Recapitalization

Creating a sustainable business is no walk in the park. Even when you do everything right market forces may create an unfavorable environment for your product/service. During this time, it’s not uncommon for companies to operate in the red, build up massive debt, and become overleveraged. When this happens, it sometimes becomes necessary to sell your business to a company that is either more financially stable or has the resources to weather the storm that your business and/or industry are experiencing.

This can be done through recapitalization. This is restructuring the debt/equity mix of your company. As the owner, you can sell off a majority interest in your company in order to bring in operating capital.

Related: The most valuable skills of your team members

The main benefit with this is that you can sell to experienced professionals who can bring added expertise and management skills to your company. Being acquired by the right Buyer gives you added resources, enhanced sustainability, and increased human capital.

In either case, when you do reach the point where you are considering selling your business it is crucial that you reach out to knowledgeable advisors (i.e. attorney, CPA, Broker if necessary) to help guide you through the process, make sure you are protected, and ensure that you receive the value you deserve.

Jamal Jackson, JD/MBA is a corporate attorney licensed in the State of Illinois. He is the CEO & Managing Attorney of Jackson Corporate Law Offices (www.JacksonCounsel.com), Co-Founder of Initiative Consulting Group, LLC (www.initiativecg.com) and a Public/Motivational Speaker engaging audiences in the topic areas of Business, Leadership, and Legacy (www.JamalEJackson.com).