Business owners’ traditional routes to selling their companies was to a strategic buyer, a financial buyer or handed it down to family members. Today, more and more business owners are entertaining selling only a portion of their business and staying on to assist operating it.
This is a good choice for business owners to buy out other partners or want a new partner, but aren’t ready to exit their business altogether.
Taking capital and not leaving the business is a unique transaction. No matter what portion of the company the business owner sells, it is imperative they do a thorough job of due diligence for their potential new partner(s). It is understandable that a business owner becomes excited at the prospect of receiving a large sum of capital from a sponsor that they get lax or forego some of their due diligence on their partners and or the terms of the deal.
Then they may find themselves in a very uncomfortable position if things go south and they get stuck trying to undo the deal without a lot of aggravation and risk to the business, not to mention what it will cost, legal bills etc.
The due diligence needs to be thorough, the agreement needs to be sound and the partners have to have the right fit to allow the company to grow to scale as intended.
Lack of control or partial control investments can last up to 10 years in some cases, with the right synergies.