Sell & Stay: What business owners can learn from the UFC
American mixed martial arts promotion company, the Ultimate Fighting Championship (UFC) has hit the headlines again as it was revealed its new investors include 23 celebrities and sports figures. Ben Affleck, Mark Wahlberg, Tom Brady, and Serena Williams are just some of the famous faces who make up the group of private investors who bought the UFC for a figure reportedly in the region of $4 billion in July this year.
The price tag is considerably impressive considering the organisation was purchased for just $2 million back in 2001 by Lorenzo and Frank Fertitta and their high school friend Dana White. While both of the Fertitta brothers have left the company, crowd-pleasing White has remained as president, meaning UFC fans across the world are rejoicing.
Unlike the Fertitta brothers, who took a back seat from the outset, White has always been a firm fixture in front of the cameras, working to promote the fights as well as fronting the UFC’s reality television spin-off The Ultimate Fighter. Since the sale, White has stated that his workload within the UFC is likely to increase with him having to take on a bigger role behind the scenes, demonstrating that despite the rumoured $360 million he made from the sale, he is not yet ready to turn his back on the UFC.
The news highlights a key issue that can arise within businesses: what if you want to sell, but do not want to leave? Despite the general perception of business owners selling up, buying a yacht and never working again, it is actually common for owners to stay working within the business post-sale.
What is the reason?
Business owners looking to stay within a business post-sale usually do so for two reasons: the first is the financial security it brings, extending far beyond regular income and allowing business owners to de-risk their financial portfolio and remove their name from the company’s debt. Another reason is that the business is a passion-project and the owner may prefer to work in the business rather than on it.
While we do not know White’s personal reasons for staying with the UFC, the reports of his new deal indicate he will be heavily rewarded financially. As well as the $360 million for the sale, ESPN recently reported that White’s new deal is for five years and will see him secure nine per cent of the company’s net profits.
Understand the options
Owners looking to remove the financial risk from their portfolios find that financial buyers, such as the celebrities involved in the UFC deal, are the best option. This type of deal sees the owner sell a percentage of their interest as well as relinquish some control, all while still remaining in the business indefinitely or for a specified period of time.
For those who are driven by a love for the business and a desire to work within it, finding a strategic partner with experience in that particular industry or an interest to expand into it can work to their advantage. The right buyer will be as invested in the business as much as the owner and should actively seek to keep the owner for the value they bring in the form of market knowledge and key contacts.
Know the role
Once a potential buyer has been earmarked, business owners need to quickly define their post-sale role, their exact responsibilities and who they will report to. These conversations need to be had at the start to avoid complicated negotiations and business owners should stand firm on what they are looking for in their position. As with any conversation surrounding elements of the deal, it is important that business owners align themselves with a trusted partner who is able to provide a third-party perspective if matters turn difficult or become emotionally charged.
Business owners should utilise the skills of an expert partner, not just in terms of advice and guidance but when it comes to finalising all of the terms of the deal. An expert advisor will know what to look for in any contracts and how to identify clauses that might cause concern.
Things are going to change…
When a business owner moves to a different position, it can sometimes prove difficult for them to check their ego at the door. Regardless of the original owner’s role in the new company, someone else’s money is now at stake and the new owners are going to make decisions that a past owner may not agree with. Although this can prove to be challenging, it is important for past owners to look back at the reasons why they decided to sell while remaining in the business and the rewards that have come with the deal.
As for White, it remains to be seen whether he will stay with the UFC beyond his five-year deal and, despite there already being instances of him voicing his dissatisfaction of recent booking decisions, the sale of the company he fought hard to grow has resulted in huge financial rewards and allowed him to remain in a business he cares deeply about.
Stay tuned to our blog for M&A news and remember to get in touch with our experienced team with any questions you have about the M&A process and how Benchmark International can help you.