What are "outsiders" in business succession planning?

Minneapolis attorney Sally Grossman explains what outsiders are.

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Transcript:

Outsiders would be, kind of by definition, anybody who is not an insider and not a member of your family. And generally buyers break down into two categories. There are either financial buyers or there are strategic buyers, and a financial buyer is somebody who is looking at your financial statements and saying, “I’m going to buy this business, I’m going to run it for a fairly short period of time. It might be three to five years, it might be five to seven years. And then I’m going to try to flip this thing for more than I bought if for.”

So, private equity firms for example fit that model, and with a financial buyer, they probably aren’t going to keep your management team on. You might be able to stay around as a consultant because they aren’t in that industry normally, but long-term they’re probably not going to keep the business, they’re going to flip it somewhere else. Whereas a strategic buyer is somebody, like let’s say one of your competitors, who says, “I really like the product line you have the complements the one I have.” Or, “You’re in a geographic market that I’m not in.” Or maybe another company in the industry comes to you and says, “We want to buy you because we want to get into that market.”

They will normally pay more than a financial buyer because they’ve got a specific need and desire for what your business has to offer, but they probably aren’t going to keep any of your management people because they’ve already got their own people, and they might have HR, and they might have accounting, and so there’s a lot of duplication. They often feel they can make some efficiencies by cutting out your excess overhead, which unfortunately might be some of your key employees.