Despite your best efforts to convince an owner to sell, sometimes you will find that an owner of a not-for-sale company is just not ready to let go – even if he or she thinks partnering with your company is the right decision. In some cases, you will have to part ways and move on with other prospects in your pipeline, but if there’s a strong strategic fit between your two organizations, you may still be interested.
We like to say, “Every company is for sale…for the right equation,” so even if the owner is not willing to sell today, there may be a way for the two of you to reach a deal. Here are three ways to approach this situation:
1. Buy the business over time
Purchase a portion of the business today and set options in the agreement that you will continue buying pieces of the business in increments at year one, year two, and year three, for example. This will give the owner a second, third, and fourth bite of the apple, and allow him or her to exit the business over a period of a few years.
2. Work together today with an option for acquisition in the future
If the owner does not want to sell, you could also agree to work together in another fashion, such as a licensing agreement or some other type of partnership, for a period of time, after which you are provided with an exclusive look at acquiring the company in the future. This way the owner retains control of the business, but you both have an opportunity to benefit from your collaboration. In addition, you are able to plant the seeds to be the preferred buyer in the future.
3. Use a traditional earn out
If the owner is not ready to completely walk away and wants to have an active role in the business, an earnout is a useful option. With an earnout, you purchase the business, but the owner remains an active participant in the company and receives payouts over time for growing a certain segment of the business. Earnouts can keep the seller engaged in the most interesting parts of the business while the buyer takes care of “boring” items like paperwork, or administrative details. Plus, the seller gets more cash over time for growing the company and hitting certain pre-set milestones.