Exit strategy: Alternatives to an outright sale

  • Sep 2014

As experts in maximising shareholder value, we were asked by Real Business, the leading UK title for high-growth businesses and entrepreneurial SMEs, for our opinion on planning a successful exit strategy. Part two of seven – what are the alternatives to a complete sale of a company?

When considering an exit, you should consider all options open to you, so that the best exit route can be selected. Selling the business to a strategic acquirer, while a popular choice, is not the only exit route.

An alternative exit route may generate better results, albeit over a longer time period, than an outright sale, so time should be taken to consider all options in order to decide what is best for you and your business.

Alternatives to a sale include:

Sale of a minority stake to a financial investor

Selling a minority stake in your business to a financial investor should unlock capital for private shareholders while enabling you to retain management control of the company. Financial investors have an exit horizon of typically between three and five years, during which time they anticipate that their investment will have enabled the business to grow sufficiently so as to enable them to realise a substantial return on the investment made.

Institutional investors are generally looking to more than double their money over the period of their involvement – which means that your majority shareholding will have appreciated in value materially alongside your investor. However, the investor will want the right to exit at the end of their investment period – which may trigger an exit event – an outright sale or possibly bringing in a replacement investor.

Sale of the company to a management buy-out (‘MBO’) or buy-in (‘MBI’) team

An MBO offers a seller a discreet, ‘internal’ transition to the existing management team, who are both familiar with the company and aware of its opportunities for growth. Exiting in this way requires you to have built a strong management team who are already responsible for managing the business on a day-to-day basis.

In an MBI, existing management are replaced by an external management team. The two options can be combined in a buy-in management buy-out (‘BIMBO’), whereby a new CEO may join the business working with the incumbent managers and together purchasing the business usually with the help of an external investor.

Purchase of shares by the company

Sometimes, a sensible use of your business’s surplus capital at a particular time may be to purchase or ‘buy back’ its shares. This option may be taken to accommodate a retiring shareholder, enabling them to realise their cash without the company being sold, or as a means to consolidate ownership among key managers.

Buy-backs may not always be a favoured route as there is always an opportunity cost if the same funds could have been reinvested in the business to support growth. This route is also not very tax effective as the value returned to the shareholders is generally treated as a ‘distribution’ (like a dividend) and taxed as income and not capital gains.

Initial public offering (‘IPO’) – London Stock Exchange or Alternative Investment Market

A flotation on the stock market can be both financially rewarding for existing shareholders and will allow you to tap into new equity capital to grow your business. However, it can be impractical if you are unable to handle the management and financial burden of building and maintaining investor relations.

The cost of an IPO can be prohibitive, both to achieve the float itself and to comply with ongoing stock exchange governance. Lastly, your business needs to be of a scale to attract blue-chip investors which may wish to invest in minimum tranches of £2m to £5m but have their holding represent less than a 10% shareholding.

Part one: When and Why you should consider exiting your business.


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