We frequently work with entrepreneurs who devote their lives to building economically successful companies. Some are serial entrepreneurs, and over their working lives they are involved with multiple enterprises that they either sell or remain involved with in a marginal way. Others are focused exclusively on a single enterprise and the challenge of deciding when, if, and how to sell it. Selling your company, your life’s work, can be daunting.
Most entrepreneurs are fully aware that there will come a time when they must sell, either because the company grows beyond their capacity to manage it or because they age to a point where continued management is impractical. In some cases, heirs are available to continue family ownership, but in many cases entrepreneurs need to sell at a time and price that allows them to enjoy the balance of their lifetime.
A typical situation occurred with one of our very successful clients who created a company doing business around the globe. The company had a substantial book of business that created significant enterprise value. Our client had grave concerns about the impact of the sale of the company on his many employees, and wanted to ensure their well-being and the health of his life’s work. We counseled the client on the process and helped put the when and why of a sale within the perspective of his personal life goals.
We also analyzed the potential proceeds from a sale, and, working with his accountant, estimated the tax impacts of a transaction. Like most entrepreneurs who know their industry, he already had a general sense of the value of his company and the most likely purchasers. After long conversations examining the potential different outcomes given the economic environment at the time, the probable future economic conditions, and his personal workload and life agenda, he came to the decision to have us proceed to organize a sale.
The first step was to identify an investment banking partner with the right skills and experience to manage the selling effort. We surveyed more than 30 prospective teams before selecting six that warranted an interview. We arranged to have each of the firms make a presentation, one after another, over the course of a long day, thereby allowing our client to
measure them side by side. He quickly identified two of the firms as potential partners on the basis of how they approached the meeting—each had done considerable preliminary work on valuation and prospective acquirers.
In the end, our client chose one firm in large part because of the chemistry and personality of the principals. The firm selected demonstrated a history of success and the capacity to carry a deal through to completion. One of the fears we shared with our client was beginning a transaction that would not be completed, with the negative impacts on the employees and the company, a waste of time and effort for all involved. Once we had begun, we required success.
The next steps involved working with attorneys to craft an equitable contract that protected our client and ensured favorable deal terms. We needed to seek legal and accounting professionals who specialized in these transactions. The contracts had to fairly represent the interests of our client, the investment bankers, and the potential purchasers.
Once the attorneys’ matters were settled, the investment bankers took over the process. They worked with the company CFO to create an Offering Memorandum, began surveying the industry to test potential interest, selected a small number of prospective acquirers to incite an auction process, and finally negotiated terms that were agreeable to the client. We stepped into the background, helping the client understand the “what do I get to keep in my pocket” number, and deciphering the complexity of earn-outs, escrows, and tax ramifications. It was an emotional, grueling time.
In the end, our client enjoyed a very favorable outcome. The sale had excellent timing, and it preserved the integrity of his company and the well-being of his employees. Most importantly, he now had a secure nest egg that was beyond his lifetime spending needs, and he could begin a new chapter in his life. We felt very happy for our client and pleased to have helped him achieve his goals.
The case studies described herein are intended to illustrate Manchester Capital Management’s approach to developing personalized solutions to our clients’ unique investment management problems. These examples should not be considered to be recommendations for any particular client and are not intended to demonstrate a pattern of success or guarantee positive performance. Because our recommendations are individually tailored based on each client’s individual needs, there is no guarantee that our approach to managing any client’s account will share some or all of the characteristics as the situations depicted.
Nothing contained on this website constitutes investment, legal, tax or other advice and is not to be relied on in making an investment or other decision.
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