4 Reasons A Strategic Merger Might Be Better Than Selling Your Business

Thinking Of Selling Your Business?

Perhaps You Should Be Considering a Strategic Merger Instead

Okay, so you’ve built your business to a decent level. You’ve done a good job. You’re thinking to yourself “we might not be a million miles off being ready to cash in, here.”

But, is that what you really want?

We come across this scenario all the time. Business owners who are doing well for themselves, but ultimately aren’t ready to retire. You’ve still got that enthusiasm for what you’re doing. Getting up and being motivated every morning isn’t a problem for you.

Yes, your business could be sold. But what then?

If you’re currently stood at this crossroads, merging with a larger organisation might be a much better choice than a full exit.

1. If you’re looking to grow, merging with a large, acquisitive, trade partner, could prove easier and less risky than raising the necessary finance yourself.

When this article was written in 2022, raising capital was difficult even if your business is performing well. If you require a vast sum of money to hit very ambitious growth plans, the likelihood is lending will prove challenging. There’s a high probability extra security will be needed too. Do you really want to risk that beautiful home you’ve worked so hard to get? Some larger businesses have greater cash reserves or access to borrowing, but this must be checked rather than assumed. Selling a portion of your business could be a much shrewder move than trying to grow it on your own.

2. A strategic purchaser might be able to extract more value via hard and soft business synergies. That means they could justifiably pay you more money.

As always, value is subjective. A trade buyer can reap cost-saving rewards such as, for example, incorporating the company into an existing business unit. More than that though, a trade partner is far more likely to gain other benefits that a different type of buyer simply wouldn’t see. Perhaps they’ll acquire a footing in a new market territory? Or maybe get access to new technology, that would otherwise be too costly to build from scratch? Your existing expertise of how to penetrate a synergistic sector, might even seal the deal? These are just a few things that could ramp up your value in the eyes of a larger competitor.

3. A later sale of your remaining shares will depend on agreed exit rights and fresh due diligence.

This is a slightly double-edged sword. The simple fact is a merger or partial sales requires virtually the same level of due diligence as a full business transfer. Initially at least, to get the merger through, there will be a high degree of due diligence required. This includes the usual toing and froing with solicitors, corporate financiers, etc. A later exit may still require fresh due diligence, valuation and negotiation. Agree transfer restrictions, valuation mechanisms and exit rights at the outset; a quick sale is not guaranteed.

4. Your quality of life could improve thanks to less responsibility resting on your shoulders.

When you merge with a larger organisation, they are likely to want some of their existing staff to be involved in the day-to-day running of their latest acquisition. That means you’ll get to delegate some of those lower-value, time-consuming, tasks, so that you can concentrate on leading the business and making sure the acquisition is a success. This might lead to less hours in the office and free up more spare time for you to spend with your family and friends. You’ll also enjoy having fewer financial pressures and constraints, which could also help provide mental and physical health benefits.

A 2022 example from the author’s advisory work

At the time of writing, the author was advising a £4m turnover business with joint owners in their mid-forties. They felt too young to retire and were enjoying what they’re doing and have identified plenty of opportunities to extract more value from the business by selling later in life. Of course, this translates into ambitious growth plans.

They needed expertise the business lacked and a significant amount of capital to deliver their plans, and lenders had declined to provide it.

Their advisers discussed other options with them. The most logical was to explore the potential of finding a trade partner to merge with. This would give them the expertise and finance they need, without having to sell the business before being ready to do so.

A merger can only work with the right partner though. In this case, a potential partner was identified: an overseas business with around £100m turnover that wanted to enter the UK market. Discussions were at an early stage when the article was published, and its outcome was not reported.

Want To Explore Your Business Merger Options?

As you can see, there is plenty to think about and often your decision won’t be as binary as either selling or not selling your business. There is plenty of scope in between and a range of options that might suit your situation better that a full exit.