2nd Bite Goal… 2-4 Times the Return on Investment
The first bite of the apple occurs when the PEG buys your business. The second bite of the apple refers to the time when the PEG sells your company, typically three to seven years from the time they bought it from you, and you receive your share of the proceeds. The goal of many PEG’s second bite of the apple is for you to receive a two to four times return on your investment that you rolled into the new company. Some owners enjoy working with PEGs so much that they continue to run the company and participate in the third, fourth, and possibly even more bites of the apple.
A Path to the Future and or Retirement / Exit
The second bite of the apple is a great option for sellers. This strategy allows sellers to reduce their risk, have cash to invest in other life endeavors, and have partners that can guide their company to greater success. If purchased as a platform, the PEG will work with you to build your business for three to seven years. You will likely need to be the leader of the new company for the first couple of years (longer if you like), prior to transitioning to an advisory role.
Real World Owners Who Sold to PEG
Kelly Business Advisors clients Andy and Stacy found comfort in the second bite of the apple when they sold Rapid Air to Pfingsten Partners. Andy and Stacy sold their business and rolled 20% of the proceeds into the new company. Stacy has worked her way 100% out of the company, and Andy transitioned 100% to an advisory roll in 2022. When Pfingsten exits the investment, Andy and Stacy will receive 20% of the proceeds of the second sale of the company.
Sellers Benefit from Second Bite of the Apple
In this video, I talk with Andy and Stacy about the second bite of the apple. Andy tells how the transaction motivated him to keep a high level of engagement at Rapid Air. By doing so, he maintained control of the company’s day-to-day operations while contributing to its future. The structure of the deal appealed to Andy and Stacy, not only because of the payoff down the road.
Additionally, it gave them a path to successfully leave the company to a buyer that would do very well with their company, keeping the jobs in their small town. Pfingsten put equity in, along with the seller and a little financing from the bank, being careful not to have too much debt. Plus, Andy said it’s more satisfying to put his money to work at Rapid Air, instead of investing the money elsewhere.
With Recapitalization, Owners can Exit in Style
Business owners have numerous options to consider and typically a lot to learn when planning for the sale of their company. Maintaining a minority or majority of the ownership potentially with a great buyer is one of these options. A recapitalization with a potential second bite of the apple gives many sellers a path to exit their company in style. Three to seven years later, the seller gets a second opportunity to cash out again when the larger, stronger, more diversified company is sold again.
Contact Kelly about the Second Bite of the Apple
If you would like to learn more about the possibility of selling to a PEG, Kelly would be happy to meet with you and talk you through the process. Kelly will listen to your concerns and learn about your vision for the possible sale of your business.
Kelly helps clients make informed decisions based on the best interest of their business, their families, and their future. Contact Kelly Business Advisors today to discuss the sale of your company, 920-737-2579.