Don’t Want to Sell Your Company? There’s Another Alternative

I speak daily with business owners, and constantly hear variations of “I’m not sure I want to sell now,” “I don’t want to sell my company now, but maybe I should,” and “I might want to sell now, but I like running my business and am afraid I’ll have nothing to do if I sell.”

We will not assume a sell-side assignment unless the owner is nearly shouting, “I WANT TO SELL NOW!” If we sense any ambivalence, we urge them to either keep their company or work through their doubt until their ambivalence is gone.

We spend a lot of time educating potential clients on a viable alternative to an outright sale of 100% of the company. The sale of a minority interest. The sale of somewhere between 25% and 49% of the company. (For technical regulatory reasons, we do not manage the sale of less than 25%, although it can be done by FINRA-registered broker dealers. An owner can certainly sell less than 25%, but they would either need to manage the sale themselves or use a FINRA-licensed broker dealer.)

These transactions often involve another feature in addition to the sale of part of the owner’s stake: the infusion of cash into the business for growth either in the form of equity or debt. If it’s equity, owners learn that this infusion further dilutes their ownership percentage. Assuming a company with a $100MM equity valuation, if an investor buys 25% of an owner’s interest in a company with a $100MM equity valuation for $25MM, and then invests another $10MM in growth capital, the investor’s ownership percentage would now be more than 25%, reflecting its cash infusion.

Next: Why Sell a Minority Stake?

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