You may have seen the recent news: Minnesota Rusco, as their well-known jingle states, has been a strong and respected company in our community since 1955. Without warning, it was shut down after recently being acquired by an out-of-state private equity group.
What Went Wrong?
In full disclosure, we were not a part of this deal. But as M&A Advisors and Business Brokers who have been selling businesses for 25 years, we understand that business sales are complex. Post-closing integration can be even harder. Culture, financial strength of the buyer, deal structure, financial incentives, and many other factors play a role in successful acquisitions. Here are some potential factors to consider when selling a business:
- Lack of Exit Planning: Hiring an M&A Advisor is not exit planning. If you are thinking about selling in 5 years, talk to an M&A Advisor like us today. You either plan your exit, or it happens to you.
- Prioritizing Legacy: Maximizing price is a common goal. But for many business owners, especially family and founder owned companies, legacy is just as important. If this is true for you, it should be reflected in your process. Let your advisor know what you are looking for in a buyer. We’ve seen many deals where our seller turned down the highest offer to work with a buyer that they felt was best for the future of the business.
- Maximizing Options Versus Just Price: Instead of only maximizing price, maximize your options as a business seller. Run a process that attracts many types of buyers, including Strategic and Private Equity. Don’t rush into the arms of one buyer. It may look like a great offer, but great compared to what?
- Debt/Capital Stack: Debt is common in business acquisitions. Business buyers like leverage. But as a seller you should ask every buyer you are considering how much of their price is Cash and Debt. Debt is a tool that often allows buyers to pay more for a business. However, it’s reasonable for you as a seller to understand how much leverage the business will have. You may decide to select a buyer who is putting in more equity (cash) versus other buyers and therefore has less debt risk.
- Leadership: Like any endeavor, good leadership is critical. Who will run the business after closing? Do they have a successful track record? Do you have a strong senior leadership team that will provide continuity for the business?
- Buyer’s Track Record: Has the buyer made acquisitions in your industry before? Will they provide access to former sellers? How good are they at post-merger integration? How strong is the corporate balance sheet and could they weather a storm in your industry?
Private Equity is One of Multiple Options
There’s nothing inherently wrong with private equity buyers, we work with them all the time on successful deals. Many deliver capital, access to additional resources, wisdom, support for strategic growth, and scale. All of which can enhance value. But the difference lies in alignment:
- Understand what your ideal outcome really looks like (financial and personal goals)
- Don’t limit yourself to one buyer or one buyer type
- Discuss different exit paths and different buyer types: Private Equity, Strategic Buyers, Individuals, Internal Buyers – and match the one that fits
- Structure the deal so you protect your value, your team, and your legacy
- Maximize price and maximize buyer options, Maximize Your Life’s Work
Let’s Find the Right Buyer Together
One misstep in buyer selection can jeopardize everything you’ve built, but the right buyer can kickstart future success for the business and solidify your legacy. Don’t wait until you’re forced into the wrong deal. Let’s be proactive and work together to come up with a plan that works for you and finds the right fit for the business.
