Recent data suggests that ensuring that your company has adequate management in place that will continue downstream of a sale transaction can be worth a significant amount of money to you as a seller.
GF Data, one of the firms that aggregates data on private equity transactions in the middle market, recently published an article entitled “Where have all the Sellers Gone?” As part of their analysis of 2013 data, the firm analyzed 50 transactions where PE firms acquired companies from individual/family sellers. Where the selling company had management in place for the period downstream of the transaction, the value of the company was 0.5x to 1.9x EBITDA more valuable than similar companies that did not have such management in place.
In dollar terms, this means that for a $5 million EBITDA company, the sale price would be worth $2.5 million to almost $10 million more if the company had an adequate management team in place to guide it downstream of a transaction.
This is consistent with the nature of private equity buyers: they are generally financial players without operational expertise. Consequently, if you can bring continuity in management to a transaction, it adds significant value to your company.
The lesson to take from this is that it is worth planning ahead for a transaction and putting in place institutional management within the company. This is particularly true if you are looking at a potential transaction as a way to retire from day to day operations.