STS Capital Partners

Divestitures

It is estimated that more than $10 trillion in private and family businesses in North America will be sold in the next decade as aging Baby Boomers move on to the next phase of their life.

Selling all or part of your business is one of the most important decisions you will ever make. It is not a “Do-It-Yourself” exercise. Errors can be very costly, financially and personally, and usually they are irreversible. In many cases, you will be selling to an experienced individual whose objective it is to pay as little as possible. Our Partners have the knowledge and the experience to help position and market your business to multiple international bidders through a competitive “soft auction” to maximize the value and then to negotiate a favourable sales agreement.

Divestitures take several forms and choosing the right approach is critical to maximizing value to you.

• A full divestiture can be the result of planned or unplanned events. A business owner may decide to retire or gradually reduce his or her involvement in the business. Or a divestiture may be required because of death, disability or a change in family circumstances such as a divorce.
• An owner may decide to sell a minority or a majority equity share in the business in order to bring in a partner with new capital, new relationships or other capabilities, all of which will support more rapid growth of the business.

In the case of a full divestiture, where the owner plans to stay in the business only for a transition period of a year or two, we nearly always seek out a Strategic Investor -- a larger business that is already operating in the same sector and which is seeking growth via acquisitions. Strategic investors can pay higher multiples than financial investors because of the synergies they can gain from the acquisition.

For growing businesses looking to raise capital via a partial divestiture, a strategic investor may not be appropriate because generally, strategic investors are less likely to take a minority position in a business unless it is a very large entity. In partial divestiture situations, a Private Equity investor may be the preferred option.

Private Equity investors generally invest in companies with good management, a strong growth record and a viable plan for the future. Private Equity investors can feed more capital into successful companies over time in order to support more growth. The original owner ends up with a smaller piece of a much bigger company which can then be sold to a Strategic Investor. Exit could also be through a Public Offering.

A Private Equity firm may also be considered a Strategic Investor if the firm already has investments in the sector and is looking to add to that portfolio. In such a situation, the Private Equity investor will be able to gain many of the synergies of a Strategic Investor and can therefore pay higher multiples.

STS Capital Partners has a disciplined process for selling all or part of your business to maximize value in the marketplace and find the buyer or partner with the best fit. The process begins with a thorough overview of the business and a review of comparable recent transactions. We can also provide independent Business Valuations that sometimes are required by shareholders to get an idea of the fair value range of the company.

The next step is a strategic exercise with the owner(s) and management to identify both the preferred and required outcomes of a transaction. These range from issues such as price expectations, to the role of the current owner(s) and key employees. We also meet with other advisors such as your accountant and legal advisor to identify key tax and accounting considerations.

The divestiture of all or part of a business to a strategic investor is a once in a lifetime opportunity to monetize the many years of careful hard work the owners have put into building a business. Mistakes can be very costly and they are usually made by an inexperienced seller dealing with an experienced buyer or investor. STS Capital Partners enables the mid-market firm to negotiate on an equal footing with a strategic buyer and to ensure that the value and potential of the company are maximized.