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    Considering Selling Your Business?

    3 min read time

    Every business owner considering the sale of the business should learn from the little girl in the 19th-century fairy tale, "Goldilocks and the Three Bears." As you recall, she tested all three of the Bear Family’s porridge, chairs and beds and never settled for any of the early options. Much like Goldilocks, you may have many options available when considering how best to exit your business.

    Considering Selling Your Business?

    Usually, business owners view their succession option as selling to an external buyer or perhaps someone familiar with the business, an internal buyer. External or third-party buyers are strategic or financial buyers. Internal buyers might be your current managers working together to pull off an MBO (management buyout) or your employees purchasing your company under a program created by Congress called an employee stock ownership plan, or ESOP.

    You’ve no doubt heard, or even know, disappointed business owners who sold to the first party that made an offer and later regretted their decision. They spent zero time exploring alternatives. More problematic is the fact that their professional advisors failed to help them understand the myriad options available. Lofty plans were shelved. Money was left on the table. And dreams of long-term independence were even crushed.

    Sell Your Business Using the Dual-Track Process

    PCE Investment Banker’s first dual-track client engagement successfully closed nearly two decades ago. The dual-track process allows you the ability to market your business to multiple third-party buyers while at the same time evaluating the sale of the business to an ESOP. PCE manages both processes — the sell-side auction process and the ESOP process — under one engagement. As the strategy unfolds, you can compare both possible outcomes at once and make the best choice. You end up with peace of mind knowing that you achieved the best outcome possible.

    One of PCE’s early dual-track sale engagements led to increased interest by a private equity group as well as two strategic buyers. The process involved a close look at the tax advantages of going with the ESOP option. Armed with this data, the sellers convinced the external buyer to raise their offer. In the end, the sellers sold 51% of their shares to the ESOP at a value that netted after-tax proceeds equal to 90% of what the strategic buyer initially offered for the entire company. Several years later, they sold the remaining 49% to the ESOP, netting a substantial premium over external third-party offers.

    Compare Exit Strategies Before Selling Your Business

    Today’s robust M&A market has the dual-track process becoming a three-track process. Financial buyers, including private equity groups, family offices and wealthy individuals, have become active buyers of businesses such that you can be just like Goldilocks, testing and contrasting the sale not only to an ESOP but also to both types of third-party buyers: strategic buyers and financial buyers.

    All three exit scenarios provide benefits and challenges. It’s worth examining the pros and cons of each exit process.

      ESOP Financial Buyer Strategic Buyer
    Transaction Pricing "Fair Market Value" "Fair Market Value" Premium for synergies likely and market growth
    Owner Exit at Sale 

    Limited ability — depends on strength of management

    Limited ability to retire or reduce role within company

    Fastest retirement strategy

    Negotiable — typically 1 year

    Liquidity at Closing

    Constrained by access to bank debt determined by company’s cash flow

    Partial reinvestment of sale proceeds (rollover) typical

    Substantially all

    Transaction Structure

    Stock sale only

    Asset sale typical

    Asset sale typical

    Taxes on Proceeds

    Capital gains are eliminated / deferred completely

    Blend of ordinary income and capital gains

    Blend of ordinary income and capital gains

    Post-Sale Operational Changes

    Limited, day-to-day or none

    Limited, day-to-day, significant changes on major business decisions

    Post-acquisition consolidation and operational changes

    Seller’s Role Post-Sale

    Actively involved – dependent on strength of management

    Actively involved, continual focus on business growth and development

    Usually limited for short duration, then full exit from business operations

    Transaction Timeline

    < 6 months

    4 – 8 months

    6 – 12 months

    Access to Seller’s Confidential Information

    None

    Limited risk, as the buyer is not a competitor

    Risk of competitors learning about your strategic advantage

    Mitigated by non-disclosure agreement

     

    We believe you need to understand all your liquidity options thoroughly, and the dual-track engagement eliminates the chance of an uninformed decision. The dual-track strategy is a winning combination that can lead a strategic or financial buyer to more favorable terms and a higher price or increased values and after-tax proceeds for an ESOP scenario — or both!

    Visit our Exit Planning Library to find additional resources to guide you through the exit planning process.

     

    David Jasmund

     

    David Jasmund, Shareholder

    Investment Banking

    djasmund@pcecompanies.com

    Orlando Office

    407-621-2100 (main)

    407-621-2111 (direct)

    407-621-2199 (fax)

    Largest Transactions Closed

    • Target
    • Buyer
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    David Jasmund

     

    David Jasmund

    Investment Banking | ESOP

    Orlando Office

    407-621-2111 (direct)

    djasmund@pcecompanies.com

    Connect
    407-621-2111 (direct)

    407-621-2199 (fax)

    Eric Zaleski

     

    Eric Zaleski

    Investment Banking | ESOP

    Chicago Office

    847-239-2466 (direct)

    ezaleski@pcecompanies.com

    Connect
    847-239-2466 (direct)

    407-621-2199 (fax)

    Melissa Ritter

     

    Melissa Ritter

    Investment Banking

    Orlando Office

    407-621-2128 (direct)

    mritter@pcecompanies.com

    Connect
    407-621-2128 (direct)

    407-621-2199 (fax)

    Michael Rosendahl

     

    Michael Rosendahl

    Investment Banking

    New York Office

    201-444-6280 Ext 1 (direct)

    mrosendahl@pcecompanies.com

    Connect
    201-444-6280 Ext 1 (direct)

    407-621-2199 (fax)

    Will Stewart

     

    Will Stewart

    Investment Banking | ESOP

    Orlando Office

    407-621-2124 (direct)

    wstewart@pcecompanies.com

    Connect
    407-621-2124 (direct)

    407-621-2199 (fax)

    whitcomb-woody

     

    Woody Whitcomb

    Investment Banking

    Orlando Office

    407-621-2113 (direct)

    wwhitcomb@pcecompanies.com

    Connect
    407-621-2113 (direct)

    407-621-2199 (fax)

    poole_michael

     

    Michael Poole

    Investment Banking

    Orlando Office

    407-621-2112 (direct)

    mpoole@pcecompanies.com

    Connect
    407-621-2112 (direct)

    407-621-2199 (fax)

    vogt-paul

     

    Paul Vogt

    Valuation

    Atlanta Office

    678-641-4760 (direct)

    pvogt@pcecompanies.com

    Connect
    678-641-4760 (direct)

    407-621-2199 (fax)

    Mackenzie Moran

     

    Mackenzie Moran

    Investment Banking

    New York Office

    201-444-6280 Ext 3 (direct)

    mmoran@pcecompanies.com

    Connect
    201-444-6280 Ext 3 (direct)

    407-621-2199 (fax)

    Isabel Carta

     

    Isabel Carta

    Investment Banking

    Orlando Office

    407-621-2149 (direct)

    icarta@pcecompanies.com

    Connect
    407-621-2149 (direct)

    407-621-2199 (fax)

    Philipp Seubert

     

    Philipp Seubert

    Investment Banking

    New York Office

    201-444-6280 Ext 4 (direct)

    pseubert@pcecompanies.com

    Connect
    201-444-6280 Ext 4 (direct)

    407-621-2199 (fax)

    Pearl-Rachel 667 x 667

     

    Rachel Pearl

    Valuation

    Orlando Office

    407-621-2140 (direct)

    rpearl@pcecompanies.com

    Connect
    407-621-2140 (direct)

    407-621-2199 (fax)

    R Winston 667 x 667

     

    Richard Winston

    Valuation

    Atlanta Office

    404-994-4650 (direct)

    rwinston@pcecompanies.com

    Connect
    404-994-4650 (direct)

    407-621-2199 (fax)

    Thomas Harrington

     

    Thomas Harrington

    Investment Banking

    Orlando Office

    407-621-2145 (direct)

    tharrington@pcecompanies.com

    Connect
    407-621-2145 (direct)

    407-621-2199 (fax)

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