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Private company exit strategies: Five steps private company owners need for a successful sale

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J. Fentress Seagroves US Inbound XLOS Leader, Inbound Deals Leader, Inbound Advisory Leader, Japan Business Network leader, PwC US

A strong US economy and readily accessible capital continue to support one of the longest-running positive M&A cycles in recent history. However, despite the positive environment, many private and family business owners find the idea of selling the business they conceptualized, built and grew to be a difficult and emotional one.

It’s something we often see—one recent example for me being a family business in the manufacturing sector that had been successfully led by the second generation for 20 years before the three children ultimately decided that, for personal reasons, they no longer wanted to continue the management responsibilities. Moreover, there wasn’t a next generation family member ready to run the business. A fairly straight-forward occurrence, but one the family had to come together and make a decision around.

Over my 25-year career handling private and family business transactions, I’ve worked closely with companies as they consider this decision to sell. Naturally, in almost all circumstances, these businesses are looking to maximize the value of their family’s hard work while managing the impact a sale would have on their business and employees. In my experience, there are five important consideration areas for business leaders to understand that can help an owner to operate with confidence in the often uncharted waters of a sales process.

1. Deciding Your Objectives

Though it may sound obvious, having a clear goal and committing to the sale is a critical first step. For an owner, deciding whether or not to sell their business is an important moment in time for owners to take a proactive point of view on their objectives. For some there are the straightforward financial motivations, such as a liquidity event or for estate and tax planning. At other times, non-financial objectives can be the main drivers, such as employee/stakeholder concerns or even personal family dynamics. Nothing beats long term planning and disciplined preparation for the ultimate decision.

2. Understanding the Buyer Universe

Once a decision to sell the company is made, the smartest move an owner can make is to start looking at their business through the eyes of a potential buyer. Specifically, they should ask questions like ‘what kind of organization would find the most value in my company?’ Record numbers of private equity are looking for deals, but the buyer universe goes beyond funds.  A logical acquirer could be a competitor looking to make a strategic purchase, a vertical integrator looking to take advantage of an organization’s position in the supply chain and operational expertise, or traditional private equity or venture capital firms who see strong growth potential and stand ready with capital to support rapid, inorganic growth. By understanding who the buyer of your company may be and how they align with specific objectives, an owner can then better position themselves as they prepare for a sale.

3. Preparing the Business for a Sale

Understanding the nature of the acquirer aside, it’s also critical for an owner to look at their business through the buyer’s lens to both position the organization as an attractive purchase and maximize value. This is an owner’s opportunity to organize the data and financial information needed while also developing the business narrative that can’t be found in the numbers alone.  History has always been the underpinning of my confidence in the future.  Wrapping a coherent and data linked history of the performance of the business helps to build a defensible projection of the future state of the company, and that is what buyers are paying for. 

4. Managing the Deal Process

The better the preparation for and understanding of the diligence process is in focus, the more control an owner can maintain during the process. When the final bidder is chosen, the leverage can shift, especially if there are inconsistencies, concerns and surprises that arise during confirmatory diligence. Create a sense of scarcity to get the best bid, but accelerate to close, as time generally favors the buyer.  When it comes to making the final buyer selection, it’s important to consider price, terms and certainty to close among the various considerations.  And one additional reminder -- remember to run the business like you aren’t selling it and hit your projections. Strong performance not only optimizes value but it protects optionality.

5. Preparing for Life After the Deal

Following a deal close, there is still important work to be done to ensure the liquidity from the sale is optimized in a strategic and tax-efficient manner. A former owner faces a lot of options, from diversification strategies to estate planning to establishing a family office, trust, or foundation. Working with the right advisors to determine the direction to best achieve your financial, and personal goals will become paramount.

Which direction should you take? It depends.

The sale of a family or private business can be a challenging emotional experience.  Most owners only go through it once and are usually frustrated by the amount of disruption a process can have on a business.   The points outlined are designed to help highlight how an owner can best prepare and optimize a sale process.  There is no substitute for preparation, from early planning to data management to process execution.  Following this roadmap will likely prepare owners to execute a sale that optimizes fiscal value while preserving the legacy they’ve created for their business, their family, and themselves.

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J. Fentress Seagroves

US Inbound XLOS Leader, Inbound Deals Leader, Inbound Advisory Leader, Japan Business Network leader, PwC US

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