Having an exit strategy in place from the start can help to ensure that your business is always ready for sale. The key is to create a plan that suits your goals and allows for flexibility. Business-Owners Fast Track Their Exit Strategies.
These include the difficulty in accessing long-term capital, uncertainty over the political landscape and increasing costs for goods and services.
Employee Ownership Trusts
Employee ownership trusts (EOTs) are a popular exit strategy with a number of significant benefits for both shareholders and employees. We have recently helped Optimax Systems, the world’s largest manufacturer of prototype optics and Aardman Animations (creators of Wallace and Gromit) to transition to an EOT.
These structures are similar to ESOPs, but they differ in a couple of key ways that can have a significant impact on a business owner’s decision as to whether an EOT structure is right for them. They also provide the opportunity to retain a minority shareholding and remain involved as directors receiving market rates of pay. This indirect (trust) employee ownership model has proven to improve workforce engagement and productivity, helping companies grow.
Mergers & Acquisitions
The motivations for this will vary – a desire to maintain some influence in the business or a clean break.
For those who do want to make a clear break, there are two key processes: a trade sale and private equity (PE). Both of these require detailed due diligence to identify and understand the business. A well drafted confidential information memorandum backed by a high-quality marketing data room is important in positioning the opportunity to potential buyers.
Other options include a management or employee buyout, selling your stake to an investor or even liquidation. Liquidation is a relatively simple and straightforward route to an exit but it can leave you out of pocket if you have taken on debt to finance your business. This option is usually a last resort for businesses that are losing significant revenue.
Family Succession
Family businesses are heavily dependent on their founders not just for leadership but also for the connections and technical knowledge they have built up over time (Christensen, 1953; Danco, 1982; Hershon1 1975; Tashakori, 1977). Failure to plan succession needlessly deprives the business of these crucial managerial assets (Beckhard and Dyer, 1983).
Family members often feel ambivalent about the decision to let go and can use a range of self-defeating strategies to cope with this. These can include passively sabotaging the successor’s professional development (Rogolsky, 1988).
One way of managing this is to break down succession into separate entities – management, ownership and leadership. It will also make it easier to plan. Harris Williams has expertise in helping family-owned businesses with their succession planning and can help you to get your plans in place.
Private Equity
Private equity firms take over and run a business for an extended period, typically 10+ years, before selling at a profit. This approach can have advantages for entrepreneurs. It allows them to move on to new career ventures or retirement with the benefit of knowing that their businesses are in good hands.
Despite the controversies that surround it, private equity has proven to be a successful way for business-owners to get out of their companies and into the hands of others. However, it isn’t for everyone.
Our interviews with PE fund managers reveal that the best practitioners adopt rigorous, disciplined processes to prepare for exit. They carefully assess the pathway to exit and develop a compelling narrative, backed up by crisp evidence of operational improvements. This includes running pilot programs to test new management initiatives that can drive value. A clear plan of action begins at least 18 months before the desired sale date. The industry also sets a high standard with the Guidelines for Disclosure and Transparency and its supporting Private Equity Reporting Group needs read more hear.
