In “Alice’s Adventures in Wonderland”, by Lewis Carroll, Alice confronts a Cheshire cat sitting on a tree at a fork in the road:
Would you tell me, please, which way I ought to go from here,” asked Alice.
“That depends a good deal on where you want to get to,” replied the cat.
“I don’t much care where,” Alice answered.
“Then it doesn’t matter which way you go,” uttered the cat.
For calculating business owners seeking a liquidity event, the choice between a transaction with a strategic buyer or a financial sponsor represents a proverbial fork in the road; each path leads to a different destination. The strategic route likely will lead to the highest valuation, however, the mandate for synergy realization and integration may mean a diminished or eradicated role for former owners and operators, with little to no opportunity to realize future value. Conversely, the sponsor track likely will entail a commitment to remain involved with the business, including a roll-over investment that offers the opportunity to participate in future value creation when the sponsor exits the business.
Business owners that are indifferent between a sale to a strategic buyer versus a collaboration with a capital partner, ostensibly are primarily concerned with immediate value maximization, rather than an ongoing trek down a value creation path. Single-minded sellers add credence to the Cheshire cat’s advice, “it does not matter which way you go.” However, sellers that desire liquidity, yet also wish to create and realize value in the future, will not experience Alice’s quandary; they are mindful and longer-term focused, and when they reach that fork in the road, they will choose, with deliberate intent, the sponsor path.
In today’s transaction environment, the opportunity to proactively pursue a liquidity event in parallel with an opportunity to participate in future value creation is not a fantastical aspiration; a second “bite of the apple” following a journey alongside a capital partner, undoubtedly, can allow a business owner to experience adventures in wonderland, but it requires a sense of direction.