The Tale of The Partial Sale
The Tale of The Partial Sale
An Insight into: Selling a stake in your company
Anyone visionary and disciplined enough to start a business with one employee and to turn it into something giving work to several hundred within a decade is a striking success by any standards. But what is the next chapter?
Once upon a time…
Chapter 1. … a rapidly growing company near Cambridge encountered the challenges that even the best businesses face in a world where standing still is neither an option nor an instinct. The company was founded by one man and until recently he remained the sole director and shareholder, steering its growth in what could have been a somewhat lonely role. It was also he who maintained some of the key client relationships, many with blue chip organisations, and he alone who was ultimately responsible for the wages of the employees.
Whilst driving the business forward and delivering year on year growth, the owner had also thought prudently about what the next stage of the journey should be. That is quite a responsibility for one person working without a board of directors and with employees relying on his judgement.
Chapter 2. When we were approached to help on the next stage of his corporate journey, it was with an open mind. The founder was not ready to sell his business – there was plenty of gas left in his tank and he retained considerable ambition for the business, not to mention loyalty towards his staff.
There was however, interest in “de-risking” his personal position by banking some cash that was tied up in the value of his shares, whilst retaining control of the company. Taking some cash “off the table” would free him up to take braver, more ambitious decisions for the long-term benefit of the business, without bearing all the personal financial risk.
Chapter 3. There was also a growing realisation that to make the business “saleable” in the future, he would need to strengthen the team around him and make himself far more dispensable, so the business could continue to thrive when he was no longer there. This should be a key objective if you are an entrepreneur considering your own succession plan. Such a move may seem counterintuitive to the immersion, focus and commitment that created your success in the first place. But it is vital.
Bringing in senior people with different skills, perspectives and ideas to sit around the boardroom table with you would have many benefits. Furthermore, we see many businesses that have reached a certain size without the help of, for example, a finance director or sales director. As part of both a company’s growth plan and the founder’s succession plan, it is often advisable to fill these key roles.
Chapter 4. After listening to our client and his ambitions, we decided together that the best step was to bring in private equity investment and to sell a minority stake. This would enable him to take some cash off the table, to welcome professional investors with decades of experience on to the board, and to work together with them towards an eventual exit. International expansion is one area where the experience of the investors should prove beneficial.
Putting the right investors with the right company requires a deep understanding of an enterprise, its ethos and the individuals concerned, as well as of the range of investor opportunities. Getting it wrong can cause a great deal of distress. Our knowledge and experience of the private equity community, both good and bad, enabled us to identify the ideal partner for our client. Together we selected an investor for the long term who understood the founder’s motives and the subtleties and sensitivities of some of the client relationships.
Chapter 5. The relationship has worked as we hoped. In return for a minority stake, the company owner now has the benefit of a highly experienced investor on his board. This extra, committed support will help to build the business further, take it into new overseas markets and ultimately enable the founder to exit completely.
…and they all lived happily ever after.