Creative Exit Tactics: Sell as a Group and Double your Multiple

Hey ,

The main reason why small business exits are so challenging can be summed up in one word: liquidity.

There are simply not as many business buyers as there are for stocks, bonds, or real estate. This is despite SME businesses making up an equally significant if not larger asset class.

For private equity buyers, who usually offer the second best multiples after IPO’s, the smaller the business is the riskier it is, so they usually go for more mid market players.

This leaves you as a small business owner with a challenge, how to reach a desired size where you tick all the boxes for the best buyers?

I don’t need to tell you that growing revenue and profit is hard, we’ve all been there, and most likely so have several other small players in your niche.

Well what if the solution is right there, using the fragmentation of your industry to your advantage. Instead of several six and seven figure businesses all trying to sell to a small pool of buyers, how about forming a joint offer with all the adjacent companies. All of a sudden it’s an eight figure group of companies for sale that fits far more of a PE buyer’s financial and diversification metrics than the individual companies.

The scale of this united front can easily turn a 3x multiple into a 6x multiple without any spend on sales and marketing. Buyers will give a ‘liquidity premium’ on bigger companies because they’re easier to sell down the road.

This could be either creating a joint company that holds all the respective shares, or even just a contract between you that says you’ll only sell together. There doesn’t need to be any change of management or shareholding.

Food for thought! Any questions about this structure let me know.

See you next week,

Unlocking Wealth Weekly Team