June 22nd, 2021
When a business owner is considering options to ownership there are many factors that impact that ultimate decision. At Baker Group MAC we work with our clients to identify those motivations and bring about the most desirable outcome.
One or more of these might be influencing your decision to consider utilizing the services of Baker Group MAC, Inc. in selling your business.
- No liquidity – Most of an independent owner’s worth in the company is in accounts receivable, inventory, rental equipment, and vehicles. Many have little liquidity available to them.
- No Successors – There are no family members or employees that wish to carry on the business, and it is time to consider an exit strategy to provide for a well-deserved retirement.
- Tired – Time constraints involved with the day-to-day operation of the business leave little time for owners to relax and enjoy the fruits of your labors.
- No Guarantees – It may take you ten to fifteen years to make after taxes the amount that you could receive now after taxes. Why take the risk of continued ownership of a business if you cannot guarantee your future? If you cash out, you then have total control of your financial future without any concerns about the day-to-day responsibilities of running a business.
- Unforeseen Changes – The market or industry that you are in may undergo regulatory changes that comes with the need for additional education and costs to be compliant.
These changes can be burdensome and may affect the profitability of your business. An acquirer may be able to utilize economies of scale where the independent business owner cannot. It may be time to protect your investment of time and money by considering options to ownership.
The “Golden Ring” – The whole reason why you went into business as an independent entrepreneur was for pride of ownership. Consolidation may be taking place in your industry segment, and you’ve decided it is time to capitalize on your hard work. There is a window of opportunity when the value of your business is at a peak.
Options – Sell, Merge, Recapitalize
There are a number of strategies and deal structures for owners. With careful discussion and working together we find the right transaction for them!
Outright Purchase
An outright purchase is the process wherein the stock or assets of a corporation are acquired by a purchaser. The transaction may take the form of a stock purchase or an asset purchase. The buyer would acquire 100% ownership of the company from a departing owner.
Asset Purchase
The acquired company transfers the assets of the business to the purchaser. These could include equipment, inventory and real estate, as well as intangible assets such as contract rights, leases, copyrights, patents, trademarks, etc. The acquired company executes the specific types of documents necessary to transfer the assets, such as deeds, bills of sale, and assignments. This type of transaction generally contains tax attributes.
Stock Purchase
The seller transfers the shares in the acquired corporation to the purchaser in exchange for an agreed-upon payment. A stock transaction is appropriate when tax costs, risk considerations or other issues surrounding an asset transaction make a stock sale more appealing to the parties.
Owner Recapitalization
A recapitalization is an ideal alternative for a business owner who wishes to sell a portion of their company for liquidity or estate planning purposes, while retaining equity ownership to participate in the ongoing company’s upside. This structure allows the owner to achieve personal liquidity without sacrificing operating control of the company that the owner has painstakingly grown, while gaining a strong financial partner to assist with issues of strategic importance. In many cases, an owner’s earning potential on the rolled-over equity is as much or more than the amount received in the initial “partial sale”. In addition, a recapitalization eliminates all personal guarantees tied to the company. The financial partner or equity investor will also implement an incentive program to provide management and employees with the opportunity to participate in the equity upside generated by the company’s growth strategy.
Jon A. Giberson
Regional Associate
Baker Group Mergers & Acquisitions, Inc.
jgiberson@bakergroupmac.com
714-345-0714
Orange, CA
Mr. Giberson has a BS degree from Cal Poly Pomona in Business/Marketing and has had a successful 45-year career in the telecommunications industry and is a noted authority and speaker on telecommunications management software. He is a 25-year member of the Roosters Foundation of Orange County, a social and nonprofit foundation dedicated to feeding families and raising funds for small, Orange County nonprofits.
