Who to sell your business to: a fund, an individual buyer or your employees?

Selling to an investment fund

Funds have substantial resources and often offer attractive valuations. They mainly target highly profitable companies or those with growth potential, know how to structure a deal quickly and apply a rigorous approach.

What you gain: a high price, a controlled transaction timeline, and resources to finance growth.

What you lose: the horizon. The exit is scheduled at five or seven years and shapes every decision taken in the meantime. The risk of losing the company's identity is real, and pressure on profitability can translate into trade-offs at the expense of staff.

This is the option best suited to owner-managers who want to exit quickly, at maximum valuation, and who have no particular requirement about what becomes of the company afterwards.

In practice, a fund rarely finances the acquisition from its own capital alone. It sets up a holding company that takes on debt, and that debt is repaid out of the profits of the acquired company. This explains both the ability to pay a high price and the pressure on profitability in the following years.

Two entry criteria come up systematically: a level of profitability sufficient to service the debt, and a management team able to operate without the seller. An SME where everything depends on the owner-manager is rarely a fund's target, whatever its revenue.

Selling to an individual buyer

The individual buyer is often an executive changing career, motivated by the project of taking over a human-scale company. The transfer is personalised, the negotiation more flexible, and the seller can stay on to support the handover.

What it entails: an often limited financing capacity, a sometimes lengthy search, and total dependence on the unique profile of the buyer. The uncertainties concern their management skills, rarely tested beforehand.

The option remains relevant for medium-sized companies with a strong culture, where the seller prioritises the quality of the relationship and local continuity.

Three checks are enough to rule out most non-credible candidates: the origin and level of the personal contribution, the existence of at least a verbal bank agreement, and the ability to present a plan for the first hundred days. A candidate who cannot answer these three points is not yet a buyer, but a takeover project.

Timing is the other variable to factor in. Finding the right individual profile often takes longer than negotiating with a professional acquirer, and the company keeps on living in the meantime.

Selling to your employees

Transferring to your employees preserves the spirit of the company in its entirety. It is the choice of owner-managers who place recognition, social continuity and local roots above price.

What gets in the way: the complexity of the structure, the team's limited financial capacity, the difficulty of identifying the buyers, and the time needed to structure the project. See the possible structures in detail.

The usual structure goes through a buyout holding company owned by the team, which buys the shares and repays its debt out of the dividends it receives. The difficulty is not legal, it is financial: the team rarely contributes more than a fraction of the price, and the gap has to be filled by a third party.

In France, a planned sale also triggers an obligation to inform employees in advance in companies with fewer than 250 employees. Its timetable is best planned ahead rather than endured, and non-compliance is penalised.

A fourth way: the investor-backed buyout

It combines the strengths of the three previous options: a cash buyout that secures the owner-manager's exit, a new leader identified and supported, and a gradual transfer of capital to the employees over successive financial years.

The seller does not have to carry a long-term vendor loan, the team does not have to raise the purchase price, and the company keeps its leadership and its roots. This is the model we apply in the profitable SMEs of ten to one hundred employees that we acquire.

How to decide

Ask three questions in this order. What do you want to cash in, and when? Who will run the company in two years' time? What are you prepared to see disappear?

The third is the one owner-managers ask least and regret most. Far more than the price gap between two offers, it determines the satisfaction one draws from a sale three years on.

A fourth question, more rarely asked, deserves to be raised early: what you will do with the proceeds of the sale. The tax treatment of a sale is prepared months before signing, sometimes years, and it is too late to organise it once the agreement is signed.