Should You Sell to a Strategic Buyer?

There are pros and cons to any ownership-transition strategy, but for sellers looking to maximize proceeds on the sale of their companies, the solution might be simpler than expected—here’s a brief overview of some of the top considerations for selling to a strategic buyer.

Transitioning business ownership and strategic direction can be a tricky concept for a potential seller, especially for first-generation entrepreneurs who have grown up with their companies. But for sellers looking to cash out and/or move on and start a new business, a strategy for ownership transition might be an attractive choice. And for a seller who has a strong financial interest in his or her business—and who’s looking for a potential return on investment—selling to a strategic buyer might be a smart solution.

Strategic buyers may be a good option for businesses that offer a unique organization, product or process, because they’re typically seeking to invest in companies with viable synergies—where the benefits of owning are worth more than the cost of buying. Thus, these buyers are often willing to pay more than the accepted “going rate” for companies in whose data, products or processes they have a vested interest.

Furthermore, a strategic buyer likely has plans to grow the business and might be inclined to provide reassurance to the outgoing leadership about the placement of an equally experienced person or team at the helm. And, because the buyer usually brings his or her own proprietary knowledge and product portfolio to the table, the seller may be able to watch as the company continues to grow, thanks to the market intelligence and capital injection the buyer provides.

There are a few additional considerations that sellers should be prepared to address when considering a sale to a strategic buyer:

  • If a buyer doesn’t want to do a cash-only deal, they might offer the seller stock in the business. Though this option can be potentially very profitable in the future, it may not offer the immediate liquidity that many sellers may be looking for.
  • This type of sale may lead to layoffs and disruption for current employees, as the new ownership team could potentially put their own operations, culture and/or location in place. For a seller looking to protect his or her employees and keep the business operating as usual, this may be a bitter pill to swallow.

In any ownership-transition plan, there are opportunities and challenges. For those looking to remain involved in the running of the business, the sale to a strategic buyer may not be the best option. But for those looking to get out clean, this could be an attractive option. It may also be less complicated than other ownership-transition options, because strategic buyers typically approach the current business owners with a plan and funding already in place, which could enable the owner to get out quickly and simply. And for many buyers, simpler is better.

Business owners often fail to plan their financial strategy even as they move towards selling their business, perhaps the most valuable asset they have. Defoe Redmount’s exit planning team provides guidance and counsel for business owners planning to exit from company to maximize exit value, reduce transition risks, impact long-term after tax financial strategy, and grow family wealth. Learn more here or contact us for a complimentary and no-obligation review of your exit strategy assumptions and long-term goals. See if we can help you maximize company exit value, reduce transition risks, impact long-term after tax financial strategy, and grow family wealth.