Why should you sell your business to an overseas buyer?

Why should you sell your business to an overseas buyer?

If you’re an entrepreneur interested in selling your business, it is now more important than ever to consider overseas buyers. Due to the progressive globalization of the world economy virtually any company interested in M&A stands to gain from participating in the international market, regardless of that company’s size.

For overseas buyers, acquiring an American business is often an attractive option because it allows them easy and strategic access into the lucrative American market. International buyers might also want to acquire an American company because they consider the United States to be a relative safe haven from more volatile foreign markets. Buyers may even be motivated by the desire to gain an investment visa through such a transaction.

The high demand among overseas buyers plays directly into the favor of the sellers. When it comes to selling your business, the more options you have, the better. For instance, you could sell your company to an overseas party if no domestic parties make a reasonable offer. In another scenario, the presence of a possible overseas buyer(s) for your company could even spur other prospective buyers to make more aggressive bids and pushing an auction to even greater heights for valuations.

This is the primary reason why all American entrepreneurs should keep overseas buyers in mind. The international market will open new doors for both you and your company. For instance, say that you’re trying to sell your company to domestic buyers, and your best offer is US $20 million. If you’ve only bothered to search domestically, you’ll have no choice but to accept that offer. However, imagine that you had searched for buyers in the international market as well. Perhaps you would’ve found a buyer in Brazil also willing to pay US $20 million, forcing your American buyer to increase its bid to $22 million. Or maybe you would’ve found a buyer in South Africa willing to pay US $30 million! It has certainly happened before, and it can certainly happen again.

Versailles Group, a 28-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

Selling your business when a lease is involved

Selling your business when a lease is involved

Most businesses rent commercial space where they operate their office, warehouse, manufacturing plant, retail space, etc. Therefore, it’s important to address the issue of selling your business when a lease is involved.

If you rent space for your business and are considering an M&A transaction, you should be aware of the nuances involved because of the lease. The leased space and your relationship with the landlord may have an impact on your potential M&A transaction so it’s an important issue.

First, it’s important for the seller to review the lease terms. When does the lease expire and are there any options to renew. Those will be the first two questions that a prospective buyer will ask. Once the buyer gets really serious about purchasing the business, they’ll want to know if the lease is assignable. Most of the time, even without an assignment clause, lessors are happy to accept assignment because the buying company is usually larger and a better credit risk than the selling company. It’s important to give the landlord time to review the possible assignment. Many times, sellers ask the landlord to accept an assignment and expect an immediate answer. That’s unreasonable.

The other situation that comes up is when the buying company doesn’t want the space that the seller occupies. That can be tricky for the seller as they’re obligated to pay the lease whether they’re occupying the space or not. In this case, the lessee or seller should look to see if the lease includes a provision to sublet. Provided the space can be re-rented in this fashion, the cost to the seller may only be a few months’ rent. The seller should be aware that even if the space is sublet, the seller is still responsible for all of the lease terms. It should also be noted that it’s very unusual for a buyer to want to move the business immediately or even shortly after closing. That transition time is always valuable to a seller where they’re responsible for the lease.

The other situation is when the lease will expire soon and there is no option to renew. This can be dangerous to the seller because the buyer may want to keep the space in that location while the landlord may have other plans for the space. In this case, it’s important to talk with the landlord to determine if you can have an option to renew or if they’ll allow you to execute a short lease (or extend your current lease term) so that the company doesn’t have to move in a hurry. This is one of the reasons why it’s important to have a good relationship with your landlord.

As part of Versailles Group’s M&A advisory services, we have assisted many clients in negotiating with the landlords or the acquiring company to make the lease issue a non-issue so that our clients could have a successful closing. Selling a business when a lease is involved doesn’t have to be complex; however, it’s an important issue that has to be addressed.

Versailles Group, a 28-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact
Donald Grava
Founder and President
617-449-3325

Versailles Group Named Global Mid-Market M&A Advisory Firm of the Year

Versailles Group Named Global Mid-Market M&A Advisory Firm of the Year

Versailles Group is pleased to announce that it was named Global Mid-Market M&A Advisory Firm of the Year by Corporate LiveWire. Last year, Versailles Group was named Financial Adviser of the Year for the successful sale of Photon Technology International to Horiba. Over the years, Versailles Group has won numerous awards for excellence in M&A advisory.

The text of the Press Release is listed below for your convenience.

BOSTON, Jul. 6, 2015 /PRNewswire-iReach/ -- Versailles Group, Ltd. has been named by Corporate LiveWire the winner of its "Global Mid-Market M&A Advisory Firm" award for 2015. The award is based on deal making over the past 12 months.

Corporate LiveWire's Mergers & Acquisitions Awards 2015 celebrates the achievements of dealmakers, management teams, financiers, and professional advisors who, over the past 12 months, have demonstrated excellence in their deal making. Versailles Group won this award due to its ability to consistently and successfully close transactions with exceptional results.

"The standard of competition has been incredibly tough this year," said Leah Jones, awards director of the 2015 M&A Awards. "Our judging panel spent countless hours deliberating before reaching its conclusion. Each chosen winner truly deserves to be presented with an award, and we wish all winners continued success over the coming years."

The judging panel at Corporate LiveWire placed each shortlisted candidate under intense scrutiny, setting its sights firmly on the most impressive performance over the past year. Each winner was chosen on merit and is set to play an important role in the continued economic growth.

"This recognition speaks to the strength of our team and our ability to close transactions in all economic environments anywhere in the world," said Don Grava, Versailles Group's founder and president.
About Corporate LiveWire

Corporate LiveWire is published by Fenice Media Ltd., an international publishing firm. Fenice Media offers a number of platforms for connecting its clients with an exclusive, global audience. Fenice Media's core products offer daily-updated content along with regular magazine publications that can be viewed on all digital platforms. More information on the awards can be found at http://www.corporatelivewire.com/Awards/MA2015/html5/index.html?&locale=ENG
About Versailles Group, Ltd.

Versailles Group, a 28-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group's skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com

For more information, please contact

Donald Grava
Founder and President
617-449-3325

Business Appraisal or Investment Bank?

Small Business Appraisals: Should You Just Hire an Investment Bank Instead?

How much is my company worth? Every business owner should be asking this question! Business owners usually plan to sell their company eventually, and understanding the business’ actual value is absolutely critical to planning a retirement strategy.

There are many valuation services that cater to small, privately-owned companies. These services can cost up to US$50,000 and will use a multitude of valuation techniques. The end product is an intricately detailed report that attempts to determine the intrinsic value of the company. Yet when it comes to selling a company, such services always overlook one important fact. At the end of the day, the most important determinant in a seller’s price is how much the buyer is actually willing to pay. Appraisals can be useful for getting a ballpark estimate of your company’s worth, but complex valuation models won’t change the fact that pricing mainly depends on the buyers, especially when the company isn’t publicly traded. This is why it is so important to have the right buyer.

The only time a business owner will ever get a completely accurate valuation of his or her company is when it is finally brought to market. Even if one chooses to get the business appraised beforehand, one would still need to find real buyers afterwards. Just because a valuation report claims that your company is worth US$20 million doesn’t mean that buyers will be willing to instantly hand you US$20 million in cash. The M&A process including painstaking negotiations are still necessary to secure a strong offer, especially if you have any specific preferences on deal structure (e.g., if you want to stay with your company after the sale). Most of the time, an auction process involving multiple bidders, will maximize the value of the business, and with the right buyer, you will receive an offer higher than the initial valuation.

That’s where a boutique investment bank like Versailles Group comes in. Versailles Group has nearly three decades of experience in searching for and negotiating with buyers from around the world. By applying its expertise and experience, Versailles Group will enable you to obtain the maximum value for your business. Hopefully, this will give the business owner some insight into the question: small business appraisal or investment bank?

Since 1987, Versailles Group's skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world, which is why it has won several M&A awards. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.

If you are interested in buying or selling a business, please contact us for a free consultation.

Donald Grava
Founder and President
Versailles Group, Ltd.
617-449-3325

(Photo by Don Grava)

Technology Sector M&A Activity

(Please click the chart for easier reading.)

Technology Sector M&A Activity

Across all sectors, M&A activity, for the twelve months ending May 31, 2015, has increased relative to the same time period last year. Both strategic and financial buyers are completing more acquisitions because of the recovering US economy, the impending interest rate hike, and other factors. The data above illustrates the increase in M&A deal volume in the middle market.

The technology sector has accounted for most of the increase in deal volume. In the last three months (March-May 2015), there were 526 deals completed in technology services-- more than any other sector. That number is up from 477 technology services deals completed from March-May of 2014.

The need to innovate, grow, and keep pace with the changing technological landscape is fueling M&A volume in the technology sector. Technology companies are increasing their IT capabilities via M&A strategies to scale their operations, develop domain expertise, or for growth prospects.

The rationale for acquisitions in the technology sector is strong: internet data traffic is expected to triple from 2014-2019. In addition, 50% of this internet traffic is expected to come from devices other than traditional desktops. Technology companies are acquiring businesses that enable them to ensure growth through the development of new technologies or to penetrate new markets.

Whether it's a tech company or not, if you are interested in completing an M&A transaction there is no better time than now. The looming interest rate increases, possible change of political party, world events, etc. are driving people to complete deals before it's too late.

Founded in 1987, Versailles Group is an independent, middle market boutique M&A firm and offers its clients access to buyers and sellers worldwide. The firm provides its clients with a high level of personal attention coupled with over 28 years of cross-border transaction experience. Clients benefit from world-class advice, broad expertise, and flawless execution. As one of the leading middle market investment banking firms in Boston, the firm’s focus is obtaining superior results for its clients. That’s the primary reason why Versailles Group has done more repeat business than any other middle market firm. The net result for our clients is a superior transaction, whether it is on the buy or sell-side.

If you are interested in buying or selling a business, please contact us for a free consultation.

Donald Grava
Founder and President
Versailles Group, Ltd.
617-449-3325

Valuation Multiples and Selling your Business

Valuation Multiples and Selling your Business

Valuation multiples can serve as a starting point for estimating the value of your company. The valuation process, when utilizing multiples, is simple: by multiplying a financial metric such as EBITDA by an appropriate multiple, you arrive at a rough estimate for the enterprise value of your company.

So, you ask yourself, I know my company’s EBITDA, but how do I assign the correct multiple so that I calculate a fair enterprise value? The rote calculation of EBITDA*multiple is simple; however, assigning the “right” multiple is an art.

Generally, certain industries have a typical range of multiples for companies that exist in that space. A simple Google search will present websites that claim to provide “valuation multiples by industry.” But if you want to hone in on a more accurate multiple, you are encouraged to do more in-depth research. Organize a list of publicly traded companies that have a similar financial and business make-up to the company you wish to value (i.e., they operate in the same industry and have other similarities). Next, compile a range of trading multiples for these companies by dividing their enterprise value (“EV”) by a financial metric like EBITDA (EV/EBITDA, EV/REV, etc.). With certain adjustments, e.g., including the smaller size of your company versus the public company, which decreases the multiple, this range of multiples should provide you reasonable guidance. Next, multiply the EBITDA of your company by this range and you will have calculated a valuation range for your business. However, this process (called “comparable companies analysis) may be unreliable because it is based upon today’s market prices, which may be volatile. It may also be inaccurate as many adjustments need to be made to the multiple. For example, if your company has high customer concentration or a union, it's likely that your multiple will be penalized versus other companies in your industry.

Another way to calculate a multiple range is to look for comparable companies that have recently been purchased via M&A transactions . If you can attain the purchase price for a similar company, as well as its relevant financial metric (revenue, EBITDA, etc.), you can calculate its multiple. This is actually a more valid multiple range, provided the data is current. However, this process of “precedent transactions analysis” can be inaccurate because some strategic buyers place a high “purchase premium” when acquiring certain companies, which results in a valuation far above fair market price. In addition, economic conditions may have changed since the time of the previous purchases, so that the multiple range might reflect different market conditions.

The valuation derived from these methods serves as a starting point when discussing company value with your M&A advisor. However, it is just that-- a starting point. It is important to remember that valuation multiples are based on comparisons to similar businesses, yet no two companies are the same. Your company may operate in the same industry and provide a similar service/product as another company, but there are certain unique characteristics of your business that may result in a higher or lower multiple than expected. For example, Company A has similar EBITDA to Company B in the same industry. However, Company A commands a higher valuation because it is deemed a higher quality business due to superior management, branding or other reasons.

There is a fundamental flaw in the structure of the multiple. The denominator represents a financial metric-- such as EBITDA. However, EBITDA is an imperfect proxy for free cash flow because true free cash flow includes taxes, working capital, and capital expenditures while EBITDA does not. And free cash flow truly drives the value of a business. Thus, buyers will often stray from the simplistic EBITDA*multiple valuation that the business owner expects to receive because buyers base their bid on true free cash flow generation and other important factors. Therefore, a business owner should not be surprised if the initial valuation projection via a multiple is too high (or too low). Valuation is truly an art, and an M&A advisor like the Versailles Group can perform an in-depth financial analysis to help a seller target a fair, but full valuation for his or her business. Furthermore, marketing the company properly will find the best possible buyers, which will always result in the best possible valuation.

Founded in 1987, Versailles Group is an independent, middle market boutique M&A firm and offers its clients access to buyers and sellers worldwide. The firm provides its clients with a high level of personal attention coupled with over 28 years of cross-border transaction experience. Clients benefit from world-class advice, broad expertise, and flawless execution. As one of the leading middle market investment banking firms in Boston, the firm’s focus is obtaining superior results for its clients. That’s the primary reason why Versailles Group has done more repeat business than any other middle market firm. The net result for our clients is a superior transaction, whether it is on the buy or sell-side.

If you are interested in buying or selling a business, please contact us for a free consultation.

Donald Grava
Founder and President
Versailles Group, Ltd.
617-449-3325

When To Sell Your Business

When To Sell Your Business

One of the most important questions in M&A is: When To Sell Your Business?

M&A in the middle market is stronger than it has been in years. Now that the domestic economy is gaining traction, an increasing number of companies are becoming interested in making acquisitions. As a result of this robust demand, valuations have been driven higher in nearly every sector.

Despite these higher valuations, sellers continue to show hesitation when it comes to the sale of their companies. As shown in the chart below, only 9% of mid-sized companies in 2015 are currently involved in a sales transaction, while another 6% are also actively seeking to be sold. These figures have shown little change from 2014, when 6% of companies were being acquired and another 6% were seeking opportunities. In summary, companies are still hesitant to put themselves up for sale, despite strong demand for acquisitions and attractive valuations.

Right now, some of these companies may be unwilling to sell because they suspect that demand and valuations will reach even greater heights in the future. Yet timing the market is always difficult. M&A conditions in the middle market are currently very favorable for sellers and it is difficult to speculate how long these conditions will last. A decrease in demand from buyers or an increase in the number of sellers could reduce valuations as demand falls and supply increases. For sellers trying to receive the most consideration for their companies, the key is to be ahead of this shift.

To answer the question when to sell your business, the time is now. The market is strong, the multiples are high, and buyers are plentiful.

Founded in 1987, Versailles Group is an independent, middle market boutique M&A firm and offers its clients access to buyers and sellers worldwide. The firm provides its clients with a high level of personal attention coupled with over 28 years of cross-border transaction experience. Clients benefit from world-class advice, broad expertise, and flawless execution. As one of the leading middle market investment banking firms in Boston, the firm’s focus is obtaining superior results for its clients. That’s the primary reason why Versailles Group has done more repeat business than any other middle market firm. The net result for our clients is a superior transaction, whether it is on the buy or sell-side.

If you are interested in buying or selling a business, please contact us for a free consultation.

Donald Grava
Founder and President
Versailles Group, Ltd.
617-449-3325

The Benefits of M&A From a Buyer’s Perspective

The Benefits of M&A From a Buyer’s Perspective

For those of you looking to sell your company, the benefits of mergers and acquisitions are probably already obvious: you want to retire or do something new, and now you’re looking for a big cash payout. If you’re a prospective buyer, however, the advantages of M&A may be less than immediately apparent. Why should you ever buy another company? What good can that really do you? These are the types of questions we intend to answer in this blog.

Buying For Growth

Buying another company is most beneficial when the acquisition is part of a larger “growth strategy.” While it is always possible to spur growth organically by building and developing new operational capabilities, this path will requires millions of dollars spent on new product development, countless rounds of hiring the appropriate staff, and many years of hard work. In the meantime, your company may already have been leapfrogged by its competitors.
In summary, M&A can spur growth for buyers in the following ways:

Expanding your product line and markets

While developing new products and entering new markets on your own is feasible, inevitably, it will be an expensive and time-consuming process. Additional people need to be hired, new research and development will needs to be done, and fixed assets may need to be purchased. In the meantime, you may lose your footing to a faster-moving competitor. In contrast, acquiring another company’s existing product line in bulk can be a surefire way to stay ahead of the competition.

Achieving synergy

In the context of M&A, “synergy” describes how a successful acquisition can create a new company that’s more valuable than the original buyer and seller combined, e.g., 2+2=5. In other words, becoming bigger makes your company more efficient. If your company purchases another company, the new combined entity will have greater purchasing power, better access to technology, lower borrowing costs, etc. The combined firm, if done properly should have less corporate overhead as the new entity only needs one accounting department, one HR group, etc. to run both firms.

Gaining market share

You can also use M&A to outgrow or eliminate competitors in your industry, both directly and indirectly. Organically developing your own business to keep up with competitors is a messy and difficult process, but a strategic acquisition will immediately remove at least one competitor from the field. In addition, making a synergistic acquisition will make your company larger and more efficient than your remaining competitors.

Conclusion

The benefits of M&A from a buyer’s perspective are achievable; however, if one is serious about pursuing this avenue, it is highly advisable to retain the services of a responsible M&A advisor who can guide you through the process to a successful conclusion.

Founded in 1987, Versailles Group is an independent, middle market boutique M&A firm and offers its clients access to buyers and sellers worldwide. The firm provides its clients with a high level of personal attention coupled with over 28 years of cross-border transaction experience. Clients benefit from world-class advice, broad expertise, and flawless execution. The net result is a superior transaction, whether it is on the buy or sell-side.
If you are interested in buying or selling a business, please contact us for a free consultation.

Donald Grava
Founder and President
Versailles Group, Ltd.
617-449-3325

(Photo by Don Grava)

There are many reasons why owners may want to sell a business quickly. Health issues, looming tax changes, shifting market dynamics, or operational fatigue can all create urgency. Although the desire to quickly sell a business is understandable, haste in the M&A process carries its fair share of risks.

Versailles Group, with almost four decades of experience advising business owners on complex transactions, has seen this dynamic play out many times. Experience shows urgency should never come at the expense of maximizing outcomes.

What Owners Risk by Rushing a Sale

The most obvious risk of an accelerated process is a potentially lower purchase price. Finding and approaching interested parties is a delicate and time-consuming procedure; by rushing through a transaction, you risk passing over the “right buyer.” In several transactions, we have seen strategic acquirers ultimately pay significantly more once given time to evaluate synergies.

Strategic acquirers, who often pay the highest premiums, usually require more time. A capabilities-driven M&A approach is proven to deliver stronger shareholder outcomes: a PwC study of 800 acquisitions found that deals with high strategic fit generated a 14.2 percentage point higher annual total shareholder return (“TSR”) compared to deals lacking such alignment (PwC Report).

We’ve seen the same dynamic firsthand. In one particular transaction, a buyer from South Africa ultimately outbid domestic buyers by 2.5x. That premium was only possible because the process allowed for proper positioning and global outreach. Compressing the timetable would have eliminated the opportunity altogether.

Speed can also create the wrong perception. Buyers may assume urgency signals hidden problems in the business, which can reduce trust, depress valuations, or even scare off potential bidders. Managing the narrative is critical. Versailles Group has repeatedly mitigated this risk by preparing documentation in advance, ensuring transparency, and running a structured process that preserves competitive tension even under tight deadlines.

Finally, a rushed process undermines due diligence. Serious buyers, especially those willing to pay a premium, expect well-organized financials, operational data, and legal documentation. If sellers rush, errors or inconsistencies are more likely to surface, which can reduce buyer confidence, lower valuations, or even derail a deal entirely. A compressed timeline often leaves sellers reacting to buyer requests instead of proactively managing the process, which shifts negotiating leverage away from the seller.

Early Exit Planning: The Solution

Urgency often stems from delayed exit planning. This is a situation that can be avoided entirely. In another Versailles Group blog, “Planning to Exit Your Business?,” we discussed how business owners can start preparing for their eventual sale well in advance, smoothing the path toward a successful transaction. By planning ahead, owners avoid scrambling at the last minute, reduce the risk of value erosion, and retain the flexibility to choose between a fast exit or a longer, value-maximizing process.

Balancing Speed and Value

Owners facing urgency still have options to protect value if they approach the process strategically. Versailles Group has developed a disciplined approach that enables owners to move quickly while still protecting value.

The first element is efficient preparation. By anticipating the need for speed, sellers can work with advisors to prepare materials such as non-disclosure agreements (NDAs), confidential information memoranda (CIMs), and data room contents well in advance. This ensures that even under a speedy process, there is not much sacrifice in quality.

The second element is global reach. Versailles Group’s experience demonstrates that the highest-value acquirers are often not local, and not even domestic. Accessing international buyers requires established networks and targeted outreach. Even under tight timelines, ensuring exposure to the right pool of buyers can mean the difference between a fair offer and a premium one.

Finally, disciplined process management ensures speed doesn’t become chaos. A well-structured process compresses timelines for indications of interest, management meetings, and due diligence, while still maintaining competitive tension. Done properly, urgency can create momentum rather than suspicion.

Meeting the Needs of Different Sellers

Ultimately, not every owner has the same priorities. For some, speed is the overriding priority, and a fair price achieved quickly may be the right answer. For others, maximizing value is paramount, even if it requires more time. Versailles Group has executed both strategies successfully and observes that most clients prefer an approach between the two extremes. Regardless, owners should make this decision consciously, with full awareness of the trade-offs. Selling quickly is not inherently wrong. What is risky is selling quickly without understanding what is being sacrificed.

Conclusion

Urgency is sometimes unavoidable when selling a company, but speed doesn’t have to mean sacrificing value. With the right preparation, process, and advisor, it is possible to sell efficiently while still maximizing value.

For business owners considering a sale, whether immediately or in the future, the message is clear: prepare early, understand the risks of rushing, and partner with the right M&A advisor to safeguard both speed and value.

Written by Donald Grava

Originally published: 14 July 2015

Last updated: 18 Sepember 2025

Versailles Group, Ltd.

Versailles Group is a 38-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at

www.versaillesgroup.com

For additional information, please contact

Donald Grava

Founder and President

+617-449-3325

Why Versailles Group Recommends M&A Versus an IPO

Why Versailles Group Recommends M&A Versus an IPO

A business owner seeking to take advantage of his or her company’s value will often consider two options for cashing out—an M&A event or an IPO. Before commencing either process, the business owner should weigh the relative pros and cons of both options as they pertain to his or her goals. An IPO is a financing event that recapitalizes the company, while a company sale is a liquidity event. Thus, owners who truly intend on cashing out of their business would be well advised to pursue the sale of their company as opposed to an IPO.

Selling a company has less regulatory complexities and an accelerated timeline when compared with an IPO. An investment bank can help the company find the right buyer and structure the deal in the owner’s favor. For example, if the business owner is keen on receiving immediate compensation in the form of cash from a buyer, the M&A advisor can structure the deal in this fashion. In this way, a business owner can cut ties with the company upon closing a deal. On the other hand, the business owner can be awarded stock in the new company if he or she would like a continued interest in the success of the newly merged company. An M&A event provides flexibility with regard to the business owner’s future. Most importantly, however, M&A can be less costly and achieved more quickly than an IPO.

In contrast, an IPO fundamentally transforms a company from a private entity to a public one. There are numerous downsides and costs associated with this process of going public. First, there are some direct fees to execute an IPO: underwriter, legal, accounting, printing, and roadshow costs. Furthermore, the business owner is often required to retain his or her shares in the newly public company for a certain amount of time, referred to as a “lock-up period.” This precludes the owner from cashing out of the business right when the IPO is completed.

Following the IPO, the company incurs additional expenses to comply with the stiffer rules and regulations of a public company. For example, newly public companies often need to add employees to meet SEC financial reporting regulations and to comply with Sarbanes-Oxley. In short, an IPO requires more planning, preparation, and expenses than a company sale. Thus, a business owner can most effectively and efficiently cash-out of his or her business through a sales transaction rather as opposed to an IPO. Furthermore, once the business owner cashes out, he or she can diversify their investments. This is certainly not possible with an IPO where the business owner is, essentially, trading private shares for public shares.

Thus, to answer why Versailles Group recommends M&A versus an IPO, it’s relatively simple to see the advantages of a company sale over an IPO. Perhaps, the one big exception is where the owner sees tremendous growth and is willing to “suffer” a huge amount of dilution because the company is going to “explode.” The downside, of course, is that once a company is public, there is a large amount of pressure, every quarter, to show increasing revenues and profits.

Versailles Group is a Boston-based boutique investment bank. For over 28 years, Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.

For more information, please contact
Donald Grava

617-449-3325