Business Exit Planning: Options, Value Enhancement, and Transaction Management for Business Owners

Preface xi

Acknowledgments xv

Disclaimer xvii

Foreword xix

Introduction: The Challenge of Exiting Your Business 1

Three Overarching Themes 6

A Few Words of Advice 9

Part I Business Exit Planning 11

Chapter 1 An introduction to Business Exit Planning 13

Ways to Exit Your Business 14

What is Business Exit Planning? 15

Evidence on Why Business Exit Planning is Necessary 16

Understand Your Motives 17

The Special Case of Retirement 20

Chapter 2 Begin with the Endgame in Sight 23

Develop a Game Plan 24

Value Systems and Visualizing the Endgame 25

Chapter 3 Exit Options 29

Intergenerational Transfer 29

Initial Public Offering 32

Merger 35

Hiring Professional Management 36

Management Buyout 37

Refinancing 38

Employee Stock Ownership Plan 39

Liquidation 39

Choosing the Right Exit Option 39

Chapter 4 Building Your Team to Assist Your Exit 43

Reasons for Building a Team 43

Composition and Role of Your Team 45

Selecting Advisors: An Overview 53

Your Advisors’ Ethical Standards 55

Chapter 5 Building a Business with Sustainable Value 57

Look at Your Business from an Investor’s Perspective 58

Clarifying and Adjusting Corporate Strategy 59

Corporate Governance, Systems, and the One-Man Show 61

Pre-Transaction Restructuring 68

Identify and Manage Risks 72

Operational Improvements to the Business 78

Non-Arm’s-Length Situations 82

Chapter 6 Business Plan and Valuation 85

Reasons for Making a Business Plan 85

Should You Perform a Valuation of Your Business? 87

Recasting Financial Statements 88

Building a Business Plan 90

Introductory Comments on Valuation 91

Types of Valuation 93

Adjustments to Valuations 96

Chapter 7 Tax Planning, Estate Planning, and Insurance 101

Tax Planning 101

Estate Planning 102

Use of Insurance in Your Exit Strategy 105

Chapter 8 Finalizing Your Exit Strategy 107

What Type of Investors Should Be Targeted? 108

Should There Be a Listing or Asking Price? 110

Should There Be a Competitive Process? 110

Why Use a Competitive Process in Selling a Business? 112

What are the Possible Drawbacks of a Competitive Process? 114

Timing Your Exit 115

Communicating with Other Shareholders 116

Your Contingency Plan 117

Business Exit Planning Report 117

Part II Managing the Transaction 119

Chapter 9 The Transaction Process 121

Overview of a Competitive Process 122

Confidentiality through a Transaction Process 124

Involving Company Staff in the Transaction Process and Communications with Investors 129

Marketing Your Opportunity: From Long List to Short List 131

The Information Memorandum 132

Nonbinding Offers 135

Due Diligence 135

Binding Offers 141

Exclusivity 141

Transaction Structuring 142

Head of Agreement 145

Sale and Purchase Agreement 146

Closing the Transaction 151

Noncompetitive Processes 151

Chapter 10 Negotiating a Transaction 153

Get to Know Your Negotiating Partner 154

Let Your Negotiating Partner Make the First Offer 155

Concede in Small Increments 155

After Asking a Crucial Question, Hold Your Tongue 155

Every Term of the Deal Also Depends on Every Other Term 156

Be Prepared to Walk Away from the Deal 157

Know Your Best Alternative 157

Chapter 11 Cross-border Transactions 159

Why Don’t More People Market Their Companies Internationally? 160

The Challenges of Cross Cultural Negotiations 162

Conclusion: The Only Question with Wealth is, What Do You Do with It? 165

Revisiting the Three Overarching Themes 165

You Have Raised Your Cash. What Next? 167

The Macroeconomic Effects of Succession Failure 170

Notes 173

Glossary 175

References 179

About the Author 181

Index 183