Many business-owners look to sell at some point. The reasons for selling may vary but often it is the opportunity for an owner to capitalise on the years of hard work that have gone into building up his or her business.

For many, selling is a once-in-a-lifetime event. This means it is usually an unfamiliar process. This guide is aimed at entrepreneurs and owner-managers who have not been through the sale process before, and want to know a little more about what to expect. It also includes a few tips on how best to prepare for sale and how to ensure that, when the time is right, the process goes as smoothly and predictably as possible.

1. What are the main exit options available?

There are a number of exit options available, the most common routes being the following: 

  • Trade sale - where a business is sold, usually by way of a company share sale, but possibly also by way of a business and asset sale. Buyers might be either “strategic buyers” or “financial buyers”. A strategic buyer is another business which is buying as part of an expansion strategy. A financial buyer would typically be a private equity house buying as a portfolio investment. 
  • Management buyout (MBO) - strictly speaking an MBO is just another form of trade sale, but where the buyer is the incumbent management team, usually backed by a bank or private equity house. Occasionally, an outside management team will buy the business (known as a management buy-in or MBI) or it may be sold to a mixture of existing and new management. In both these cases, an outside financier will invariably be involved.
  • AIM flotation - floating on AIM (a market of The London Stock Exchange) has become an increasingly popular exit route for owner-managers of small and medium enterprises (SMEs), as the costs of an AIM listing are lower than one on the Main Market and the regulatory regime is lighter.
  • Partial sale or cash-out - not strictly an exit, as this route typically involves the owners selling a substantial minority stake. This could be a partial sale to an institutional investor or financial buyer, with a view to a period of planned expansion and eventual sale or flotation three to five years later; or, it could be a partial sale to a strategic buyer with the sale of the remaining shares planned to happen later or not at all. This route enables the owners to realise a part of their investment while still preserving a stake in the future growth and income stream of the business.

Which option is right for you will depend entirely on your objectives, the position of the business and the prevailing market conditions. For example, if you are relatively young, wish to raise some cash but feel you still have a significant contribution to make to the business, a partial sale might be the best option. If you are, or will soon be, ready to retire, then a 100 per cent trade sale may be the best option. If your objective is more about liquidity and growth in your shares and you are primarily concerned with raising capital to finance that growth, an AIM flotation may be the answer...