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Selling up without selling yourself short

The drivers for an exit from a business can be many and varied - retirement/succession planning, market consolidation or an unexpected offer too good to resist are just three examples.

Whatever the driver, the final decision to sell can be a difficult one.

In any event, preparation will always be a key factor – in order to maximise value from the sale, the business from both a financial and legal perspective must be “issue free” so far as possible.

Ensuring that everything is in order (IP registrations are up to date, terms and conditions are up to date and correctly used, for example) denies prospective purchasers any opportunity to “chip away” at the purchase price and how and when it is paid.

How a business is structured will frequently determine the kind of exit strategy to be pursued but it goes without saying that circumstances can and do change and so it is important to remain flexible and open-minded as the strategy is pursued.

There are typically three exit routes: a trade sale, a private equity transaction and an IPO.

Trade sales not infrequently offer the highest return and, from a succession planning perspective, are an obvious choice where there is a “flat” management structure with no obvious candidates (whether or not already holding a minority equity stake) available to pursue a private equity backed management buy-out.

Of course a private equity deal need not involve a full disposal of there business. Selling a stake in the business can allow owners a ‘second bite” with only a proportion of the equity sold, some proceeds for the owners and cash invested for further growth of the company with a full exit deferred.

Stock market flotations can be a good way for owners to cash in on their investment in the business.

However, becoming a public company does involve additional compliance costs and market conditions will dictate whether this is a real option.

Whichever route you take, do remember that a successful exit takes time. Rush it and you could regret it.

* This article first appeared in a special supplement on the Greater Manchester Fastest 50 Awards 2015.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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