How to sell your business and earn the most

On exiting through IPO, PE or a strategic buyer

“Good companies are not sold, they are bought.” — Pere Valles, CEO of Scytl

When selling a company all investors have the same goal — maximize their return. However, the management team is probably attached to their project and would like to see it continue shining. This is why the final decision is always hard. In any case, if the company has been successful, there are three possible ways to sell it — IPO, PE, or Strategic buyer.

When companies arrive at this stage, they usually start preparing for an IPO. And right before going IPO you get the best offers on the table (and don’t read articles like this). The reason for this is that once you go public it will be much more difficult for a strategic buyer to acquire you and most probably it will be more expensive as well. Thus, IPO is an anchor for announcing that you can be bought. Also, when you plan to launch on some big public markets such as NASDAQ, the investment bankers announce your intentions to their clients, and PE starts calling you. In any case, let’s go through the options from the founders’ perspective. Let’s imagine that they have worked for almost 10 years in the company and cannot wait to finally get to know their children.

· IPO — It is good when your company is valued at more than $1 billion, because you get analyst coverage and institutional investors. After you go public, you usually have a lock-in period of at least 2 years and cannot sell your shares, and then you have a pro-rata right to sell over time, but not immediately. Hence, if a founder is looking to be the CEO of a public company, or is willing to maximize the ROI, I think this is a good option.

· PE — The great thing about PE is that they usually pay cash and immediately. It might be a quick way to exit. Nevertheless, some PEs might want to keep the management and/or pivot. Not my preferred option.

· Strategic buyer — Aha! Although you might get paid in cash or equity (or a mix), this option is great because you usually have a lock-in period of 1–2 years and then you are gone. Moreover, big companies can usually afford and are willing to pay more than PE for strategic purposes. However, your project will probably get diluted somewhere in the organization and it might be painful for a founder to feel his vision was crashed. That’s why you don’t hear many serial entrepreneurs talk about their previous ventures. There is always a bitter taste in your mouth, but it is a choice that sometimes has to be made.

From your investors’ perspective, you want to exit as soon as possible and in a liquid way. Your early investors might not care at all. They already made significant returns on their investment. Your last VCs will probably have a different saying and is it them who will press you to choose one option or another. And it all depends on their commitment to the LPs.

Thanks for reading and I hope this series of posts was useful!

If you’d like to hear more on other topics (related or not), drop me comment!