The Art of Preserving Legacy: A Nuanced Approach to M&A for Founder-Led Businesses

In the world of mergers and acquisitions, businesses with annual revenues between $1 million and $20 million occupy a unique space. Often founder-led, these companies represent more than just financial assets. They are the culmination of decades of passion, perseverance, and personal investment.

The Founder’s Dilemma

In this segment, many business owners consider selling their companies for a variety of reasons. Some view it as a way to finance their retirement, while others recognize that external expertise might be necessary to drive the company’s next stage of growth. However, the emotional attachment these founders have to their enterprises sets their situation apart from owners of larger, more established corporations.

Traditional M&A Approaches and Their Pitfalls

Conventional private equity (PE) strategies often involve acquiring companies to integrate into existing platforms, seeking synergies to drive returns. While this approach can be effective, it frequently results in a complete rebranding of the acquired business. For some companies, particularly those built on a distinctive strategy or mission, such a transformation can strip away the very characteristic that made the business successful.

Similarly, strategic acquirers, also motivated by potential synergies, may offer a more substantial initial financial package. However, their plans often involve dismantling the acquired company’s existing relationships and staff structures – elements that have been crucial to the business’s success over the years.

The Founder’s Perspective

For a founder who has dedicated 25 or more years to building their company, the prospect of fundamental changes proposed by large PE firms or strategic acquirers can be jarring. These businesses are not just assets; they are the founders’ “babies,” and like any parent, founders are reluctant to hear criticism or see drastic alterations to their life’s work.

A Gentler Alternative

At Sun & Moon, we recognize that if a business has thrived for three decades, weathering economic downturns and fierce competition, the owner must be doing something right. Our approach offers an alternative that respects the founder’s legacy while providing opportunities for growth and partial liquidity.

We believe that founders shouldn’t have to fully exit their businesses to benefit from private equity. Our partnership model allows owners to achieve partial liquidation while tapping into our network of operating executives. This approach may result in a smaller initial payout, but it offers founders the chance to remain involved and benefit from the continued success of their original vision, rather than a dramatically altered version of their company. Additionally, this strategy often leads to significant value creation, potentially resulting in a more lucrative “second bite of the apple” when the founder decides to fully exit. By preserving and enhancing the company’s core strengths while introducing strategic improvements, the business may be worth substantially more in the future, allowing founders to maximize their overall returns.

Preserving Value and Vision

For founder-led businesses in the $1-20 million revenue range, the best M&A strategy isn’t always about the biggest check or the most aggressive growth plan. It’s about finding a partner who respects the company’s legacy, values the founder’s insight, and can provide the resources and expertise needed for the next phase of growth – all while preserving the essence of what made the business successful in the first place.