You may not be looking to exit your business, but are you looking to grow? If so, selling a portion of your business as part of an aggressive growth strategy could be an option.
Many recent success stories have come from deals where business owners sell a portion of their business to the right partner as part of a growth strategy. As a result, they realised the best of three worlds: de-risking, extracting wealth from their business and realising massive growth potential.
Have you thought about selling to grow instead of selling to get out?
South African business owners are facing much uncertainty. Many businesses are stagnating, and the future feels out of their control. They’re not ready to jump ship just yet. On the one hand, they can see the opportunities. They love what they do and are not ready to give it all up and sell. But on the other hand, they know things could go horribly wrong. And they’re not realising the growth they’d hoped. So, what's next?
Can you relate? If so, the good news is that, through all this insecurity, you can take a calculated view and control the outcome.
If you're planning to sell one day, why not grow now? How you may ask? The answer is more straightforward than you may think. Sell a portion now to grow your business in the future.
This comes with a slight change in mindset. There is a perception that private equity firms simply put cash in and pressurise management to deliver results. However, there are a number of private equity firms looking to add real value through alignment with owners and by bringing synergies and experience from their own organisations. The trick is to find the RIGHT partners for YOUR business. The type of acquirers that will come in with the purpose of supporting and growing your business. They are out there - the magic is in finding them!
There are four questions to answer to decide if this is the right strategy for you:
Personal energy: How much personal energy do you have to continue and grow?
Value: Are you happy with the current value of your business?
Timeline: What is your timeline to exit?
Risk: Do you want to de-risk and share some of that risk with a strategic partner? OR Do you want to grow your business but require more capital?
If you have the personal energy to keep on going but are unhappy with the current value of your business, and want to take some risk off the table, then you're ready for a strategic growth partner.
We were recently discussing exactly these issues with a client of ours. They wanted to sell ± 40% to a strategic growth partner but were concerned about value. However, when they realised it would take seven years to draw the 40% of value via dividends (given the high working capital demands in the business), it made sense to de-risk by selling a portion AND being able to grow the business more aggressively than they could on their own.
The following scenarios highlight where it would make sense to find partners to grow your business rather than to sell outright:
A business with multiple shareholders who have different exit timelines, and a shareholder who is ready to retire. We can find a new partner that will help you grow significantly and allows the shareholder to exit. Now you have someone in the business who can bring in money and sales opportunities.
A great business, but perhaps the shareholders don't have the funding or risk appetite to grow it further to reach its full potential.
Very few mid-size business owners grow through acquisition. Instead, they grow organically, resulting in a slow revenue increase. Private equity players are good at buying businesses and funding acquisitions. It's a compelling path for growth.
We’ve seen this come to fruition in the following example. We concluded a transaction in 2021 whereby an electrical wholesale and distribution business streamlined its shareholding by bringing in a new partner with extensive experience in distribution businesses and significant access to funds to invest. The result was a 50% growth in both revenue and profits in the following year.
No two companies are alike. If you’re not ready to get out, but ready to grow, give us a call to chat about the right growth strategy for you and your business.
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