External Transition

Is an External Transition the Right Decision for You, Your Business, and Your Employees?

Talk of mergers and acquisitions is everywhere, and we know it can be a daunting transition option for your company to consider. Although an external transition, sometimes called a third-party transition, is not right for everyone, it can offer several benefits when you’re ready to step away from your business. Learn more about how to decide if an external transition is a good option and the main benefits of this kind of transition. 

How to Decide If an External Transition Is the Right Decision

Internal transitions, where a business owner hands their business off to their next-generation leadership team, usually take longer and don’t provide as much financial value to the current owner. Due to these potential downsides, many business owners look to an external ownership transition instead.

When considering a third-party transition, it’s important to fully understand the capability and capacity of your firm to make the best decision for all involved. Some key considerations include your timetable for retirement, the capability of your next-generation leadership, the financial ability of your employees to buy your shares on a realistic timeline, and stagnant growth due to the inability to hire/retain employees.

Below are some questions you can ask to assess if an external merger or acquisition is the right path for your organization:

  • How long until you want to retire?
    • Does your next-generation leadership team have the skills necessary to successfully perform an internal transition?
  • Can your next-generation leadership team afford to buy your company?
  • What is your current ownership structure?
  • What is your ideal situation in exiting the business?
  • Do you have a clear path for growth?
  • What is the value you want to get out of your company?

Factors Contributing to the Viability of a Third Party Transition

As you consider a third-party transition, you’ll want to look for a few tell-tale factors that often indicate an external transition is right for your business. These factors include:

  • You’re looking to retire in the next three to five years
  • Problems recruiting/retaining employees
  • Reached maximum capacity/turning down work
    • In danger of burnout of leadership and employees
  • Current economy, economic forecast
  • Employees’ unwillingness or inability to purchase the business

Benefits of an External Sale 

Although there are horror stories about failed acquisitions, an external acquisition can offer owners and employees financial and quality of life success when planned and integrated correctly. A third-party transition can also alleviate many of the struggles that currently plague many businesses, such as reaching maximum workload capacity, inability to hire in a competitive job market, and lack of infrastructure to grow your business. Additionally, giving your employees the chance to join a larger firm can provide them with new opportunities and the chance to work on exciting projects.

Check out some more of the most common benefits of an external transition below:

  • Getting the true value of your business
  • Larger infrastructure
    • Recruitment tools
    • Improved employee benefits
    • HR and administrative support
  • Opportunities for employees’ professional development
  • Ability to go after larger projects 

How to Find the Right Partner

Not unlike the dating process, you’re going to meet some firms that aren’t right for your organization. In this process, knowing what you don’t want is as important as understanding what you do want. Start with an internal assessment of your business to understand your culture, values, and the type of organization that best fits you, your business, and your employees.

Review some of the top questions to ask when evaluating whether a potential buyer is the right partner for you and your team:

  • What firms do you admire? What firms are not a culture fit?
  • How long will you be willing to stay after the transition?
  • Would being part of a larger organization offer your employees opportunities they do not currently have? 
    • Are there opportunities for key employees in the new organization?
    • What support can this company provide to your employees?
    • Do they have organizational training programs?
  • How could being part of a larger entity benefit your business?
  • Do your services align?
  • Does the leadership style of the new organization match yours?

How Thinc Strategy Can Help You Through a Third Party Transition

Now that you have asked the important questions to confirm if an external transition is the best option for your business, let Thinc serve as your trusted merger and acquisition advisor through this emotional ownership transition. Thinc guides you through the acquisition process with the experience and knowledge of industry professionals.

You can trust us to help you understand your culture and acquisition goals, vet prospective buyers, and negotiate deal terms. We can also walk you through the due diligence and integration phases and continue as an advisor long after the transaction closes.

Learn more about our M&A services today! If you have any questions or want to schedule a free consultation, please contact us.

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