Selling to a Third-Party Buyer

Maximizing Sale Price

A sale to a third party, whether an industry buyer or private equity, will almost surely result in the owner maximizing the purchase price for their ownership interest.

Tax Implications

However, the seller must be cognizant of potential upcoming changes to capital gains taxes, which may result in the tying of long-term capital gains tax rates to individual tax brackets. This will adversely affect high-income business owners the most. 

Economic Conditions

Current and ongoing economic conditions also play a significant role in third-party sales. Interest rates remain high, despite a slight decrease in the Wall Street Journal Prime Rate from 8.5% in September 2024 to 7.5% at present. These rates are still higher than those experienced before the significant increases in 2022.

Additionally, tariffs imposed during the Trump administration continue to affect certain industries, further slowing the M&A market in 2025. These factors may result in a longer time frame to sell a business, requiring patience and strategic planning from business owners.

The Importance of Preparation

With this being said, it is more important than ever for business owners to be prepared to sell their business if they are looking for a third-party buyer. Utilizing a transaction advisory professional to help review and vet purchase offers, review sale terms included in letters of intent (LOIs), and prepare the business owner for a buyer’s due diligence is critical.

Cultural Considerations

Finally, once a potential buyer is identified, the business owner must be concerned not only with the financial aspects of a potential transaction, but also the cultural impact of a transaction. This cultural impact can have ramifications on future business productivity and cash flows and should be front of mind with a business owner looking to sell, especially if the buyer has established an earn-out as part of the sale. 