BGF explains: What is an equity sale?

An equity sale refers to selling shares of a company. Company owners may do this for various purposes that include business funding for growth, securing an exit and management buyouts.

Various factors determine whether an equity sale is the right approach for a business. Understanding these factors is paramount in securing the long-term growth and success of the business.

Where do equity sales sit in the trading landscape?

Equity refers to the shares of a business. An equity sale involves the transfer of shares from one party to another.

Equity sales differ from other forms of business acquisition, such as asset sales. In an equity sale, the day-to-today operations of the company may remain relatively unaffected. This, alongside other factors, makes an equity sale an attractive option for some business owners looking to raise capital or to de-risk their personal investments in a business.

What are the benefits of an equity sale?

Simple and undisruptive

An equity sale involves the transaction of shares as opposed to assets or capital. The company as a whole remains relatively untouched by the sale. Employees, customers and other stakeholders may see little change to day-to-day operations, and it would only be the ownership structure that would see significant changes as a result.

Access to expertise

An equity sale can bring new stakeholders on board that may be able to offer new perspectives and opportunities. These new stakeholders may be experienced in their respective fields and can offer expertise to benefit the business. Some stakeholders may also have access to networks that can introduce a business to further channels of expertise and experience.

Immediate capital

An equity sale is likely to bring in a significant quantity of capital. This capital can be used for various purposes, such as paying off debts or investing into the business for growth. By selling some of their shares in the business, a business owner can lower their personal financial exposure to the business. This can free up the management team to grow more aggressively.

Is an equity sale right for your business?

Like with many forms of business transactions, there are both benefits and downsides to equity sales. Some of the additional factors to consider when planning an equity sale include:

• Additional due diligence – A potential buyer will undertake due diligence before buying shares. They need to understand the nature of the business, including its financial performance, corporate structure and so on. The process will require a business to disclose detailed information, requiring administrative work. Many companies choose to take on advisers to assist them with the process.

• Loss of ownership – By selling shares, the owners of the business will dilute their ownership. It is important that the new shareholders are aligned with the aims and vision of the existing shareholders to ensure the business can grow sustainably. This is especially important if a new shareholder becomes a majority investor in the business. Some company owners prefer to complete equity sales with minority investors, which are typically non-controlling by nature.

• More processes – The introduction of new shareholders may require the setting up of new processes to provide shareholders with relevant information on a regular basis. Managing these processes may involve additional work. On the positive side, some businesses find that servicing the needs of new shareholders has a beneficial effect because it encourages the business to become more structured and better organised.

Performing an equity sale with BGF

Depending on the market position and size of your business, an equity sale can prove to be a beneficial choice. Choosing the right investor is important to avoid destabilising your growth trajectory and to sidestep potential conflicts of interest.

At BGF, our priority as an investor is to work alongside businesses to help them achieve the type of growth that they want to, and to help business owners complete successful exits, if and when the time is right. We are always a minority investor, keeping you in control of business strategy. Our 6,500-strong Talent Network of board-level non-executives will aid you in fulfilling your vision. Our aim is to work alongside out portfolio companies towards a mutually beneficial partnership.

If you’re interested in partnering with an investor that puts your business’ growth first, contact our team today.

The information contained in this article is for general information and use. It does not constitute any form of advice and is not intended to be relied upon in making any investment decision. Independent advice should always be sought as to whether a particular transaction is suitable having regard to your personal and financial circumstances.