Cash In Twice

April 2002

Remember the old saying, “There is more than one way to skin a cat”? Well, there is also more than one way to sell your business.

At M&A PROFESSIONALS, we work with many private equity groups (PEGs) that will partner with you in growing your business. Bear in mind that a smaller piece of something much bigger can be worth much more than a larger piece of something small.

Here’s how it works. Suppose you have a business with good growth opportunities but you are at a point in your life where you would like to take more money out of the business. Possibly, you require liquidity for estate planning needs and diversification.Whatever the reason may be, consider selling a portion of your business to a group who will supply the capital required to grow the company internally and/or through acquisitions while you continue to run the company.

Four actual case examples are illustrated below:

• The owner/operator of a company sought to recapitalize in order to gain a financial partner who would assist in consolidating the industry. Two years after the initial transaction, the PEG had backed the owner in the acquisition of ten companies.
  
  
• A PEG partnered with a company’s owner/operator in a recapitalization that provided him with continuing equity ownership and operating control. The transaction generated personal liquidity for the owner and, more importantly, provided him with a partner to back him in the strategic acquisition of add-on companies.
  
  
• A PEG partnered with a father/son team who owned and operated a business. The deal structure generated liquidity for estate planning needs and diversification and allowed the family to continue to operate the company with significant equity ownership and operating control.
  
  
• A PEG partnered with the two owners of a company in a recapitalization. The transaction generated significant personal liquidity for the owners and enabled them to (i) reward two senior managers with equity and (ii) continue operating the company just as they had in the past. The PEG will continue to provide strategic support and additional capital for growth both internally and through add-on acquisitions.
  

PEGs prefer deals where management continues to run the company. You know your business—the PEGs don’t. In some cases, the PEG will acquire a control position and in others a minority position. In all cases, however, the objective is to grow the company well beyond where the owner could have done so alone and exit through the sale or IPO of a much larger company 5-10 years down the road.