Deal Structuring Options to Consider When You Exit

By Generational Equity


Quite a few business owners that we meet at our exit planning conferences are unaware that there are multiple ways to structure an M&A transaction. In some cases, cashing out 100% of the company is not always the best option for all owners.

This is the real value that Generational Equity's M&A professionals bring to our clients: A wealth of experience in structuring deals that ultimately benefit the business owner and their family. One of the fastest growing deal structures being used by dealmakers in the current seller’s market is called “minority investments.”

What Makes Minority Investments a Rapidly Rising Deal Structure?

Here is how Axial describes the trend:

It used to be business owners sold their companies outright to a strategic acquirer or a financial buyer, or handed them down to family members. Today selling a minority stake in a business to a private equity firm is becoming increasingly prevalent and offers benefits to both owners and acquirers.

Minority investing is not only good for private equity firms and their investors, it also gives business owners more options. Selling a minority stake in a business allows the owner to take some chips off the table, buy out another minority owner, or get capital for an add-on acquisition — all while maintaining control of the business and having the opportunity to cash out at a later date.

Creating a fund that specializes and focuses on making minority investments allows the private equity firm to differentiate itself in a market that is currently crowded, frothy and over-heated. It allows the firm to invest in companies that are not interested in a majority – lose control buyout – giving the owners a chance to really participate in taking their company to the next level via the deeper pockets that equity firms bring to the table.  

Selling a minority share to an experienced private equity firm might be a great option for you, especially if you have ideas for business growth but lack the financing to invest in your expansion plans. Again, here is how Axial sums the benefits up:

The minority investment strategy works best for companies that are looking to continue to grow. “Owners who are interested in selling a minority stake in their company are inherently bullish. They believe their company’s best days are ahead of them and are excited by what can be achieved with the right capital partner,” says Charlie Gifford, a senior partner with New Heritage Capital, a private equity firm that focuses on providing minority capital for growing founder- and entrepreneur-owned businesses.

Understanding Your Deal Structuring Options

Our goal at our exit planning conferences is to help business owners realize the reality that there are many ways of structuring a deal and you don’t necessarily need to exit your company. If you are ready to diversify your personal holdings, cash out a co-owner, and find financing to help grow your business, a minority sale might make sense for you.

This is another reason why you should hire an experienced M&A advisory firm to work with you during your exit planning journey. Thanks to the dozens and dozens of ways we have structured deals, our deal teams have the experience to create a package that works best for your ambitions, whether it be a full 100% exit or if you retain a majority and bring in a deep-pocketed partner. 

We know that what works best for you might not make sense for another business owner. Our deal teams take the time to get to know each client and develop a deal structure that works for that company’s particular situation.

This is one reason we have closed more deals in the lower middle market than any other advisory firm over the past decade plus. We recently passed the $4 billion mark in wealth created for our clients, a significant threshold in our industry.

Discuss Deal Structures with Generational Equity

If you are interested in learning more about deal structuring and how the ultimate structure created for your exit could end up putting more in your pocket, you need to attend a Generational Equity exit planning conference.

These meetings are highly educational and are led by business owners just like you – folks who have in many cases sold multiple businesses over their careers and have learned first-hand how important it is for business owners to have a firm grasp on the M&A process before engaging with buyers. 

To find out more, please visit the following links:

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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