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Selling a business – Determining the right purchaser

On Behalf of | Nov 22, 2017 | Business Law |

You’ve built a successful business in Alberta, and the time comes that you consider selling it. Likely, your primary concerns are to find the right buyer and attain the best purchase price. However, you might also have serious concerns about maintaining the brand identity you created. Business owners who are considering selling their businesses have a variety of options to consider, and each comes with advantages and drawbacks.

Business transition options

The optimal choice of purchaser for a business depends on the size of the company and the industry in which it operates, along with the business owner’s particular objectives. As a business owner, you might want to remain a part of the company, or you may decide to walk away and leave it completely to the new owner. The following are some of the most common options along with their pros and cons.

Management buyouts

This option involves selling your business to the company’s management team – also known as MBO. This involves ridding yourself of all or some of your interest in the company, which is then purchased by some or all of the existing management team.

  • Pros – An MBO will have a minimum effect on the business culture and operations because the buyers will already have a thorough understanding, experience and comprehensive knowledge of business operations.
  • Cons – Management may have limited funds or access to capital, which might require banks or other financial partners to be part of the deal.

Selling to a financial buyer

A financial buyer’s primary objective will be to increase the business value for the purpose of profiting from a future resale.

  • Pros – Financial buyers typically have unlimited funds, ensuring a higher purchase price. They may also deploy an experienced management team in the business to improve corporate power and bring about other value-added changes to the company.
  • Cons – Financial buyers might want you to remain active in the company for initial guidance to ensure quick turnover when it comes to reselling the business.

Selling to a strategic buyer

This buyer will be an operator in the same industry and identifies your business as one that could enhance his or her current operations.

  • Pros – Strategic buyers typically have unrestricted access to resources, and the synergy resulting from the collaboration of your business and theirs may ensure a high purchase price.
  • Cons – There may be a limited number of potential strategic buyers because of their typically being restricted to one industry. This often makes their acquisition criteria more stringent. The nature of this type of deal will almost certainly see your business swallowed up and losing its individual identity.

The decisions and choices you make at this time may have a significant impact on your future financial stability. For this reason, many Alberta business owners seek the support and guidance of a law firm with comprehensive experience in business law.

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