Retirement leads the way, no surprise. But I did find it surprising how frequently other reasons drove a sale.
Exeunt Stage Right
A few of the labels for reasons to exit above are cryptic, so I translated them as follows:
Partnership Disputes: Conflicts among shareholders over differing personal needs and/or the future direction of the company with the only obvious solution being its sale.
Financial Reasons: The owner or company faced negative cash flow.
Market Conditions: To remain competitive would have required substantial and/or risky reinvestment.
Strategic Acquisitions: A company in the same industry and considered trustworthy by the seller made an offer the owner(s) couldn’t refuse.
Family Reasons: Examples: no relative was available as successor, or family members disagreed about who that should be, or they made liquidity demands that could only be met by selling.
Another reason not explicitly listed above is risk mitigation (diversifying your eggs out of a single basket), though I suppose you might also list that motive under the “New Opportunities” label.
Graceful and Less Than Graceful Exits
I divided the reasons above for selling into two categories: voluntary and involuntary.
A sobering surprise to me is the fact that over a third of all exits were involuntary. There’s a warning of sorts buried in that number: with a little planning, many of the “involuntary” reasons listed could have been converted into exits on the owner’s terms.
Some examples:
Cultivate a successor to protect against a forced sale should your health decline. Having a competent successor increases your company’s valuation anyway since it reduces buyer risk.
Craft a pre-negotiated buy/sell agreement among the co-owner(s) that, for example: 1) Prohibits selling stakes to unapproved outsiders; 2) Establishes detailed buyout terms in the event that a partner dies, divorces or becomes disabled; 3) Defines how shares are valued (important) or; 4) Allows the company to buy back shares from partners who want out or are facing insolvency.
(While the practical value of negotiating buy/sell terms is obvious, there’s also a trade-off between avoiding conflicts that force a sale vs. causing departing owners to lose equity value because they can’t market their shares freely. Seek legal assistance to document buy/sell terms.)
Work with a trusted M&A advisor to determine whether current market conditions and the company’s financial performance are more favorable for selling now or later. When I say “trusted,” I mean an advisor who isn’t motivated by the prospect of a retainer fee to push for premature sale.
And complete our brief When to Sell the Company questionnaire to consider the many personal factors that also come into play when considering a sale.
Last, see M&A Factoid #9, where I delve into what owners who sold their business actually do with their newfound time.