BDO LLP | PRIVATE EQUITY
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WEIGHING UP THE OPTIONS All these factors need to be considered, together with your own personal feelings and wishes. If your tech business needs a significant overhaul, are you energised by this prospect, or does it all feel a bit overwhelming? Either way, what are your options?
PE MONEY-OUT DEALS – THE BEST OF BOTH WORLDS? A third option is to do a “money-out” transaction with a PE firm; a kind of managed transition. Typically, the PE firm offers to buy a significant minority stake (30-40%) and keep you involved in a senior position. The PE firm sits on the board and builds a succession team, for example by hiring an FD, CEO or Head of HR. This can be great as you get to focus on what you’re best at – such as strategy, selling or product development. Typically, you get an initial lump sum, which allows up-front diversification of wealth, and then a significant pay-out when the PE investor sells the business on. By that time, the business should be more scalable, with a strong management team and a credible growth story in place. If you’ve reached a point of existential doubt, the benefits of this type of arrangement are obvious. You get some money up front, plus a trusted partner and adviser to help take your business past its current challenges and to the next level. You retain a majority stake in the business and succession is addressed as your role is gradually migrated out. If the outcome is a successful sale, there is more money to come. No matter your reasons for considering selling your tech business, PE can provide a great middle way.
EXIT: If your business needs significant investment and/or re-engineering to deliver on its growth potential and you are falling out of love with it, this may point to an exit. The obvious routes here are to sell to a trade investor or a PE house. A trade investor or buyer may be happy with a team of general managers. They are likely to be buying for defensive reasons and will want to fold the business into their own operations rather than selling it. For example, a larger trade buyer might be building a portfolio of products. A PE buyer, on the other hand, will need to see evidence of a senior and successful management team as well as a credible growth story. STAY: Staying means that you can find a way to fund the growth that your business needs, either internally or by taking on debt. You probably also have the makings of a management team to help you evolve. You may be able to engineer a change in ownership structure, perhaps by transferring key responsibilities to a board member and staying on as a non- exec. This only works if you don’t need wholesale investment.
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