Family Business Exit
If none of the family members is interested in, or capable of, taking over the management of the family business, the family may sell the family business and invest the proceeds of sale in other assets. The family members would also have the financial resources to pursue their own interests and develop their own careers in other areas. Appropriate strategies for exit are required if the family business is to be disposed of at a good price. The family may use various strategic tools to maximize the value of the business before putting it for sale on the market. There are a number of ways for family owners to exit the business and each has advantages and disadvantages. The best exit strategy depends on the particular facts and circumstances of the family business and the family itself.
Acting as the project manager, we assist clients throughout the whole process of business exit, from strategy formulation to post-sale wealth management and succession. Our services include:
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designing the appropriate exit strategies that are best fitted for the needs of the family members and the circumstances of the family business
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advising on the pre-sale asset restructuring and the structure of the sale
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introducing potential buyers (strategic buyers and financial buyers) or arranging acquisition finance in the case of management buyout
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coordinating the work of various professional parties involved in the sale
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assisting family owners in reviewing the sales documents
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assisting family owners in the initial public offering (IPO) project
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assisting family owners in the liquidation process
Sale to Strategic Buyer
Family owners may sell the business to a strategic buyer, who is usually a competitor in the same industry as the family business. Strategic buyers purchase companies that they feel fit strategically with what they already own for the purpose of capturing synergies (for example cost synergies, revenue synergies, and risk reduction synergies). They aim to integrate the purchased entity for long-term value creation. For small and medium-sized family businesses, strategic buyers are usually preferred to financial buyers. Since a strategic buyer expects to get more value out of an acquisition than its intrinsic value, it will usually be willing to pay a premium price in order to close the deal.
Sale to Financial Buyer
Family owners may also sell the business to a financial buyer, who is usually a private equity firm. The main task of a financial buyer is to identify companies with excellent growth potential and thereby make good investment within a period of five to seven years. Since financial buyers are playing the game of buy-low and sell-high, there is a limit to how much they will pay. Financial buyers look for potential bargains that can be improved and eventually net their investors a decent return. They are concerned about what cash flow the investment will generate and the kind of exit strategies it will offer in the future.
Management Buyout
A management buyout is a corporate finance transaction where the management team of an operating company acquires the business by borrowing money to buy out the current owner. Family owners may sell the business to the existing management team, which would minimize the negative impact of the exit on the business. In a management buyout transaction, the management team believes that they can use their expertise to grow the business, improve its operations, and generate a return on their investment. They usually partner with a private equity firm, which provides financial support for the buyout deal.
Initial Public Offering
An initial public offering (IPO) is the sale of a company’s shares to the public and the listing of shares on a stock exchange for the first time. Through the issuance of new shares to the public investors, it allows a company to raise capital in order to build and expand its business. One the one hand, an IPO is one of the most important milestones in the corporate evolution of a company and a superior route and strategic option to funding growth. On the other hand, it can also function as an exit strategy for family owners of a privately held family business since they can convert their equity into cash by selling shares in the capital market.
Liquidation
Liquidation entails the closing of a business through the sale of all its assets. Once proceeds from the assets repay creditors, the residue is distributed to shareholders. Liquidation is the least desirable exit option for family owners since it offers the lowest returns. The only money earned from liquidation process is obtained from the disposal of physical assets, such as land, equipment, and inventory. The value of the family business as a going concern cannot be realized. This strategy is used when a business cannot be sold through any of the other methods, usually due to dependence on a specific owner / employee of the business or overall poor performance.