The Art of Selling Your Business
Three key aspects to be taken into consideration during the buying and selling process of a family business
Business owners that want to sell their company consider emotional aspects such as spending more time with friends and family, as well as financial elements such as diversifying their investments and growing their legacy and equity value.
Seale & Associates estimates that, during 2020, 122 companies were sold in Mexico, representing a 27.8% decrease compared to 2019. The total value of these operations was US$ 3.1 Billion, with transactions encompassing family businesses and corporate affiliates. The highest level was reached in 2017, with 240 companies sold for a combined value of US$ 11.4 Billion.
Despite this decline, entrepreneurs’ natural lifecycles and decisions to sell a business prevail, which is why, according to Ascendis Capital, a firm that specializes in the buying and selling of family businesses, there are some good practices worth taking into account:
- Create a buying competitive environment
After signing confidentiality agreements, business owners or their business brokers also known as investment bankers should create a competitive environment with several buyers. The gradual release of information to several buyers can help the seller create a favorable negotiation dynamic with several potential buyers.
- Team of specialists
Hiring specialists to support you throughout the process, such as an investment banker, a mergers and acquisitions lawyer, and a tax consultant to ensure that the transaction complies with all the legal and fiscal requirements, is essential. The investment banker or mergers and acquisitions advisor, will seek to maximize the business family’s wealth.
- Know your buyer
In general, there are two possible buyers for your business: private-equity funds or strategic buyers. It is important to understand each one’s motivations. The strategy of a private-equity fund is usually to buy at a favorable price, create value and sell later on for a higher multiple –which is why they often tend to offer less than a strategic buyer. The latter may also have synergies and an administrative structure that would increase the company’s profits by implementing a reduction in costs and expenses. However, there are always exceptions in which the highest offer could also come from a private-equity fund.
Business owners face economic uncertainty and challenges. Nevertheless, the market for buying and selling businesses will continue and it is important for business owners to know more about its processes and to strengthen their network to receive advice from professionals. Moreover, business schools –like EGADE Business School with its MBA course of Entrepreneurship Through Acquisition and Executive Education program of Entrepreneurial Acquisitions— contribute by offering business owners and MBA entrepreneurs structured solutions to know more about these topics that are so important for the wealth and legacy of entrepreneurial families.
Originally published in Alto Nivel.
