Preparing for Transition: What Business Owners Should Consider When Planning an Exit

September 11, 2020 | Breaking the manufacturing ceiling Randie Dial, Managing Principal, CLA,

At some point in a business owner’s life, an “exit” will occur. This exit means that the business will be transitioned to another party. This party could include, but is not limited to, strategic acquirers, private equity, family office investment and even family members (next generation). When this time comes, it is very important that the business owner has a strong understanding of the underlying value of the business, as well as the nuances of any potential suitors.

You might ask why there are so many different types of suitors? Because different types of suitors will have unique strategies for the business. Here is a quick breakdown of each suitor type, as well as their potential agendas:

Strategic Acquirers: Here, there is usually an underlying strategic reason for the deal. Cost synergies could exist, geographic expansion could be in play and the elimination of a competitor could be a driving factor.

Private Equity: This is typically part of a larger “rollup” strategy. Private equity acquires a platform company and then bolts on synergistic opportunities to form a much larger company over time, one that ultimately gets “flipped” or sold to a larger entity.

Family Office: Often these are long-term holders looking for diversified returns, and leadership is typically left to run the business as it continues to drive solid returns for the investor.

Family Members: Succession is the name of the game in this transaction, with families wanting to continue the business by transacting between themselves.

The value of the business at exit should be modeled and include various scenarios and sensitivities that allow the business owner to make the best decision possible. This is typically the largest asset of the business owner, so it is absolutely critical to select the right scenario for the business. Our models have the potential to help the owner understand the value differences each suitor would bring, as well as any underlying risks.

The exit of the business is typically a very emotional event for the owner. Given this, it is very important to have the right advisor and information so that these crucial decisions are not driven by emotion.