Feature: Business Exits & Transitions
Why are so many business owners fixated
on just
ONE exit option?


[Edition #4 / April 2015]

This month's Feature Article on Business Transitions doesn't answer the question of the title (it remains a mystery...) however I do explore 9 Exit Options that owners should be considering, plus a few observations on successes and failures.

Dear Friend:

The exits that go awry in my view are those where the business owner is fixated on the one singular exit strategy and hasn't fully explored other options or strategies.

Given most private businesses comprise the lion's share of the family wealth, it is often perplexing how some exit decisions are made.

If you are aware of an owner contemplating an exit or family succession, you might let them know of the options below. Even where the transfer has occurred and has not been successful, the situation may be redeemable by re-considering these alternative strategies.

Other than a Trade sale, I have listed 8 alternatives:

  1. Intergenerational transfer - a poorly thought-through decision here can be disastrous, however there are many success stories - see the story below on the Codorniu family.
  2. Management buyout - sometimes owners just need to move aside to realise the potential of others around them.
  3. Initial public offering - there are compelling reasons for and against an IPO, that an owner needs to be aware of. For the size clients we partner with, an IPO is not normally the best option.
  4. Merger - not always easy to find the ideal partner, but where one exists a merger may suit the owner's personal objectives. This strategy can be tricky if values and culture are not aligned.
  5. Hiring professional management - the owner still shoulders the business risk, however with the appropriate oversight (and metrics), this strategy can work very well.
  6. Refinancing - leveraging has its risks if the company defaults on bank covenants, however an injection of private capital can be transformational, as in the case study below.
  7. Employee share ownership plan - if the objective is to take some money off the table and retain control, this can be a good option.
  8. Liquidation - liquidation in some cases may present the best option, where the individual parts are worth more than the sale price of the whole.

An Intergenerational Transfer can go terribly wrong or it can be spectacularly successful, as in the case of the Codorniu family.

The Spanish company Codorniu (over 236m Euros revenues) can trace its family roots back to 1551, passing through 17 generations of ownership within the same family. Codorniu has a Family Code that governs its transition process. Family members hired into the company must meet specific criteria before they are considered for a position within the company.

Another success story involves the injection of Private Capital.

A client was planning to sell his full 30% interest in his company to other shareholders, as he wished to retire. An external group of private investors approached my client and the other shareholders with an offer of $8m for the full 30%; fortunately the deal fell through due to differences in personalities. A private equity fund with deeper pockets was the eventual buyer at $10.5m, considerably higher than the initial offer. Significantly, the company secured much needed expansion capital, grew from a single site operation to a global player with 10 locations in the space of 3 years, and was then sold for $49m, a 40% lift in shareholder value over 3 years.

Both these success stories engaged an external 'sounding' board who helped the owners determine which strategy best suited their financial needs and personal objectives.

Best wishes,

Jeremy

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