Navigating a business sale
Selling a business, whether in full or in part, marks a threshold between one way of life and the next. It’s a liquidity event: a transaction that liberates the capital tied up in a business, transforming it into liquid assets – assets with the power to realise new ambitions and create and preserve lasting legacies. For owners, the path to an exit can prompt conflicting feelings. It’s a process that can be overwhelming, bringing into question identities, life goals, the people that matter most, and the meaning of legacy. The right wealth manager will help owners explore all the possibilities, and importantly, achieve their ambitions.
Defining the destination
The decision to sell can come about through many circumstances – inheritance, a change in situation, or an irresistible offer. An existing shareholder could be looking to exit, or take a greater stake in the business. For others, it can just be the right time.
Knowing the aims makes it possible to steer a sale toward the right outcome – one that leaves the selling party with the right allocation of liquid assets and the right plan for future investment. It can help to consider long-term goals and how they might have changed. There may be several people who matter in the process and outcome, and they may have conflicting aspirations. Sustainability might be a priority, or preserving the integrity of the company, while in other cases it may just be a matter of the right price.
Planning the route
Different forms of exit offer different results. For example, a sale to a strategic buyer will often be a larger company or competitor in the same industry. With a personal interest from the buyer, this has the potential to offer maximum cash upfront. Alternatively, a sale to private equity might mean a majority sale to an investment firm specialising in acquiring businesses. The cash upfront might be lower than the potential maximum, but owners generally retain a stake in the business. From this, future potential arises out of the firm's expertise in growing businesses, and the retained stake can increase in value. For businesses of a certain size, an Initial Public Offering (IPO) has the potential for the full market valuation, but the success of the transaction is exposed to many factors – regulatory requirements and costs, extensive due diligence, and market conditions.
There are numerous possibilities for exit routes, and considerations will be different in every case.
Seeking the right advice
Good practical and emotional support can make a sale smooth and efficient. There is a lot to think about – from tax implications to structuring and managing future wealth. Getting the right advice can help business owners articulate a comprehensive plan and best prepare for the future.
The former business owner will need to consider how hands-on they want to be in the future management of their wealth. Co-ordinating the various players is an important part of this. Writing a family and investment governance framework can help align thinking, as well as giving voice and value to different perspectives.
Adopting new roles
On completing a sale, the former business owner now has to think like an investor. It’s an identity shift that can take time to process. But it doesn’t have to mean an end to entrepreneurship. There are many ways of activating the wealth unlocked by a sale, and of investing the proceeds, ranging from the entrepreneurial through to the philanthropic.
Many owners-turned-investors look for ways of putting their liberated wealth and time to driving positive change through impact investing and philanthropy. Those who succeed are those who seek qualified advice from the start, to identify the most effective way of driving change, find ways of involving family, or determine how best to apply time, skills, and influence. Sometimes the biggest question can be simply how to begin.
Meanwhile, freedom from the physical location of the previously-owned business can open doors to new geographies, and the potential move to a jurisdiction that better suits the investor’s aims.
Making things clear
Ultimately, defining the aims is the most important aspect of getting things right. Wise investing is only possible when there is clarity of intention, hopes, and risk appetite. The next step is to establish the appropriate investment governance – the nuts and bolts. Following this, the investor and manager can together begin to structure the portfolio and allocate assets. A clear asset allocation strategy is essential – on this, the right wealth manager will be able to provide wise guidance. Portfolios can be tailored to risk tolerance, time horizon, and anticipated spending (liquidity) needs, with the aim of protecting and growing wealth over generations. Trusts and educational accounts can also be created to pass on resources to the next generation.
Getting the right support
Trusted advisors can help work through questions and challenges, translate confusing financial jargon, save sleepless nights, and simplify complexities. All this can be especially helpful where the owner is still engaged in the day-to-day business. Once ideas are beginning to form, philanthropy and family advisory teams can offer advisory sessions, in-depth workshops, or an experienced second opinion. We have in-house expertise in alternatives and thematic equities, and managers can access a large internal knowledgebase across our four business lines. Our international investment capabilities cover a broad range of asset classes. Once the aims are clear, clients can choose from off-the-shelf asset allocation strategies, or select an investment toolkit enabling them to keep direct control over investment decisions.
