This question leads to a number of further questions which could lead on to some interesting answers:
How should all this be structured?
Why should a successful entrepreneur sell his company?
At what price should his company be sold?
Is selling a successful business the best way forward for a seasoned entrepreneur?
First and foremost, we should bear in mind that there are several reasons for selling a company and some very important factors that make a future sale feasible. The first factor may very well be that the company owners wish to cash their chips and move on to a new project. This normally happens when the age of the company owners and timing is right. There is no specific age frame, but it is wise to move forward if you are well below retirement age in order to have a good amount of time to start another company, or even easier to buy an existing company and improve it.
In business, nothing has to be forever.
Green fields can be very successful but there is an element of risk to be accounted and very hard work as well. Whereas an existing company could be a much better option because of a number of reasons; owners wanting to retire who are perhaps not as energetic with a lot of room for future expansion without all the drawbacks of a start-up venture.
An example that comes to my mind was the job that Pizza Express did in Spain in the early part of this century. They bought a small chain of restaurants of just under half a dozen units. They paid important money for them but not a huge amount. The owner wanted out. He was getting on and had important loans with several banks and could not see an interesting future ahead. In addition, his children were not keen to continue building the company.
Before the sale took place, they had a franchise project in mind and several other good ideas. The British Pizza Express group took it over, paid the owner the right money and started rebuilding the company. In less than 3 years the chain went from 5 units to over 25 and kept growing. Their annual turnover soared and their profits went up considerably. The owner of the small hospitality group cleared his banking debt and had sufficient capital to build a solid property portfolio which at present yields a good rate of return via rentals of both residential and commercial property.
On the other hand, the chain of restaurants continued to grow until it was sold to an offshore Japanese hedge fund. In business, nothing has to be forever. This applies to ownership. Not even in the oldest and most prestigious of companies stay always in the same hands. Indeed, the companies can remain active for generations but more often than not ownership does change hands.
Another very strong reason to sell is the age factor. When an entrepreneur reaches his retirement age, he probably wants to move forward by selling on to new entrepreneurs who have the necessary age, knowledge and stamina to continue. There are so many cases like this that they would be impossible to mention in a short article. We shall mention as an example a case I know personally.
Sebago shoes in the USA were the creators of the penny loafer shoe so popular during the late part of last century. Daniel Wellehan created this famous Maine-based company in 1946 with two close friends. They manufactured some great penny loafer shoes which were widely sold in America and the rest of the world for decades. In the 1970s they invented the Dockside sailing or boating shoe which became and still is a great success. Some years later after a long career, Daniel and his partners sold the company in 2004 to Wolverine World Wide who owned Sperry shoes as well. And recently in 2017 it was sold again to Basic Net from Italy for just over $14,000,000 US.
This happens all the time.
Another example of an old American icon family brand being sold is the Brooks Brothers clothing store. Founded by the Brooks family in 1818 they kept it for just over one hundred years, and then they sold it on. The company went from success to success for decades and was even purchased by Marks and Spencer from the UK until it was purchased from them by Italian Luxottica billionaire who also did well with it. Due to the enormous changes in the retail systems and the pandemic, the company reluctantly filed for chapter 11 in the US – which is basically filing for bankruptcy procedures. It has now been purchased by a joint venture formed by Simon Properties and Authentic Brand Group. We could virtually write a large book with cases like these both large and small. But there is always a common denominator, which is the need to cash your chips and move on.
The common denominator: the need to cash your chips and move on.
Ideally the price tag of the company should be placed by the company and its shareholders and not by the existing market. A goal difficult to achieve unless your product is so unique that there are investors out there willing to pay that much desired premium. European brands like Gucci, Harrods, Loewe, Emilio Pucci and considerably more well-known brands all sold at a premium because they had an excellent market niche.
One of the last great examples is glamorous Annabel’s members-only club in Berkley Square in very exclusive Mayfair of London. This truly iconic club was founded by the late Mark Birley in 1963, located underneath the Clermont Gambling Club. It was sold shortly before 2007 for over 90 million pounds to a clothing and hospitality tycoon. That was without a doubt an important premium paid for the acquisition of arguably the most exclusive nightclub in the world.