Imagineering: The M&A Fixed Rope Bridge
Entrepreneurs, although they may routinely receive a “no”, are entrepreneurs because sometimes that rejection may eventually turn into a “yes”?? If you own and operate a relatively small business, with a handful of staff, supervisors and/or practice managers resources may nevertheless still be a little “tight”?? Surrounding yourself with a team of trusted and competent professionals to help you may be ideal but unrealistic when you look at your money or rather lack thereof?? So a more creative solution may be helpful here?
You have made a decision to phase out your involvement within the business, but fully appreciate that this will not happen overnight – a more realistic timetable may be 5-10 years before you can really “leave”?? Which may be a more sensible timeframe for you to begin the gentle process of gradually taking more and more of a back-seat from daily operations?
So how do you start the process of finding if anyone actually would consider, at some point in the future, of taking over the reins from you?? Initially look at your staff – sometimes they may prefer a more senior role but not necessarily be interested in buying the business?? Next leverage your broad business and social networks informally saying that you are open to the general idea of moving-on – without giving too many specifics.
Then there are your existing professional advisors.? From a professional advisor’s perspective, these opportunities may come across your way – where one party is either seeking to “exit” a business and another wishing to expand via further strategic acquisitions.? Looking at your CRM there may be a likely “fit”, perhaps, someone that originally was not even looking to buy a business – being too focussed on their existing operations/interests.? It is almost akin to a marriage bureau to find the “right” match.
At some point a potential buyer may be identified.? After all the niceties are over between the potential buyer and seller; the issue of “trust” remains.? Both parties wish to do a deal but how can they “guarantee” that each is the “right” partner for them?? One way may be a mixture of “option” and “incremental” purchase – giving each relative security?? That is, the “buyer” takes a 5-10 year legal “option” to acquire the business; whilst the seller agrees to an incremental monthly or quarterly sale.? Where a “fractional” share ownership is transferred to the buyer, utilising the existing cash flow, topped-up with token debt (only if absolutely necessary), investor/buyer cash contributions or “sweat” equity from the buyer.
During this option period the buyer works with the seller (effectively as a “mentee”), so that each is fully aware of one another’s strengths and weaknesses; as soon as they feel completely comfortable with one another, the buyer then formally exercises the legal option and “pays” the seller on the terms that were originally negotiated between the two.? There can be a “clawback” clause/stipulation to protect the seller if the buyer fails to hold up his/her end of the agreement?? Hence why it is vital to ensure that you are genuinely happy with one another at the outset and after the initial “honeymoon” or probationary period?? If something is intuitively amiss it may be necessary to part ways early on – amicably?
There are many school leavers, college leavers, graduates and postgraduates that are seeking real opportunities instead of an “internship”; this may be one way to address that – especially if they lack the necessary cash to make the purchase (their sweat equity could compensate for that; whilst ensuring that they receive a “fair” salary/wage for living expenses – a fraction of which may be retained, by mutual agreement, in order to help them further build up their “equity” account with the seller?)? The youth have the drive and the seller the wisdom.
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Kip
The EBO Guy??????
…Acquiring businesses for employees