Business Exit Planning E-Book

Les Nemethy

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch

Seitenzahl: 317

Veröffentlichungsjahr: 2011

Beschreibung

The most viable exit strategies for owners of mid-sized companies For many business owners, cashing out of a business is a lifelong dream. For some, exiting a business can be a nightmare. Business Exit Planning: Options, Value Enhancement, and Transaction Management for Business Owners provides a comprehensive view of what every business owner needs to know to plan and execute a business exit. The book * Includes 30 relevant mini-case studies on business exit planning and transaction management, as well as a glossary of frequently used technical terms * Details options for those owners who no longer want to be active in the business, as well as for those who want to remain invested * Covers a wide range of topics related to business exit planning and transaction management, including IPO, MBO, refinancing, ESOPs, building an exit team, business plan and valuation, due diligence, and estate planning Regardless of whether a business owner seeks an immediate exit or a staged exit over time, Business Exit Planning provides a comprehensive strategy and road map to define exit-related objectives.

Leseprobe

Table of Contents

Cover

Table of Contents

Wiley Finance Series

Title page

Copyright page

Dedication

Preface

Acknowledgments

Disclaimer

Foreword

Introduction: The Challenge of Exiting Your Business

Part One: Business Exit Planning

CHAPTER 1 An Introduction to Business Exit Planning

WAYS TO EXIT YOUR BUSINESS

WHAT IS BUSINESS EXIT PLANNING?

EVIDENCE ON WHY BUSINESS EXIT PLANNING IS NECESSARY

UNDERSTAND YOUR MOTIVES

THE SPECIAL CASE OF RETIREMENT

CHAPTER 2 Begin with the Endgame in Sight

DEVELOP A GAME PLAN

VALUE SYSTEMS AND VISUALIZING THE ENDGAME

CHAPTER 3 Exit Options

INTERGENERATIONAL TRANSFER

INITIAL PUBLIC OFFERING

MERGER

HIRING PROFESSIONAL MANAGEMENT

MANAGEMENT BUYOUT

REFINANCING

EMPLOYEE STOCK OWNERSHIP PLAN

LIQUIDATION

CHOOSING THE RIGHT EXIT OPTION

CHAPTER 4 Building Your Team to Assist Your Exit

REASONS FOR BUILDING A TEAM

COMPOSITION AND ROLE OF YOUR TEAM

SELECTING ADVISORS: AN OVERVIEW

YOUR ADVISORS’ ETHICAL STANDARDS

CHAPTER 5 Building a Business with Sustainable Value

LOOK AT YOUR BUSINESS FROM AN INVESTOR’S PERSPECTIVE

CLARIFYING AND ADJUSTING CORPORATE STRATEGY

CORPORATE GOVERNANCE, SYSTEMS, AND THE ONE-MAN SHOW

PRE-TRANSACTION RESTRUCTURING

IDENTIFY AND MANAGE RISKS

OPERATIONAL IMPROVEMENTS TO THE BUSINESS

NON-ARM’S-LENGTH SITUATIONS

CHAPTER 6 Business Plan and Valuation

REASONS FOR MAKING A BUSINESS PLAN

SHOULD YOU PERFORM A VALUATION OF YOUR BUSINESS?

RECASTING FINANCIAL STATEMENTS

BUILDING A BUSINESS PLAN

INTRODUCTORY COMMENTS ON VALUATION

TYPES OF VALUATION

ADJUSTMENTS TO VALUATIONS

CHAPTER 7 Tax Planning, Estate Planning and Insurance

TAX PLANNING

ESTATE PLANNING

USE OF INSURANCE IN YOUR EXIT STRATEGY

CHAPTER 8 Finalizing Your Exit Strategy

WHAT TYPE OF INVESTORS SHOULD BE TARGETED?

SHOULD THERE BE A LISTING OR ASKING PRICE?

SHOULD THERE BE A COMPETITIVE PROCESS?

WHY USE A COMPETITIVE PROCESS IN SELLING A BUSINESS?

WHAT ARE THE POSSIBLE DRAWBACKS OF A COMPETITIVE PROCESS?

TIMING YOUR EXIT

COMMUNICATING WITH OTHER SHAREHOLDERS

YOUR CONTINGENCY PLAN

BUSINESS EXIT PLANNING REPORT

Part Two: Managing the Transaction

CHAPTER 9 The Transaction Process

OVERVIEW OF A COMPETITIVE PROCESS

CONFIDENTIALITY THROUGH A TRANSACTION PROCESS

INVOLVING COMPANY STAFF IN THE TRANSACTION PROCESS AND COMMUNICATIONS WITH INVESTORS

MARKETING YOUR OPPORTUNITY: FROM LONG LIST TO SHORT LIST

THE INFORMATION MEMORANDUM

NONBINDING OFFERS

DUE DILIGENCE

BINDING OFFERS

EXCLUSIVITY

TRANSACTION STRUCTURING

HEADS OF AGREEMENT

SALE AND PURCHASE AGREEMENT

CLOSING THE TRANSACTION

NONCOMPETITIVE PROCESSES

CHAPTER 10 Negotiating a Transaction

GET TO KNOW YOUR NEGOTIATING PARTNER

LET YOUR NEGOTIATING PARTNER MAKE THE FIRST OFFER

CONCEDE IN SMALL INCREMENTS

AFTER ASKING A CRUCIAL QUESTION, HOLD YOUR TONGUE

EVERY TERM OF THE DEAL ALSO DEPENDS ON EVERY OTHER TERM

BE PREPARED TO WALK AWAY FROM THE DEAL

KNOW YOUR BEST ALTERNATIVE

CHAPTER 11 Cross-border Transactions

WHY DON’T MORE PEOPLE MARKET THEIR COMPANIES INTERNATIONALLY?

THE CHALLENGES OF CROSS CULTURAL NEGOTIATIONS

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

REVISITING THE THREE OVERARCHING THEMES

YOU HAVE RAISED YOUR CASH. WHAT NEXT?

THE MACROECONOMIC EFFECTS OF SUCCESSION FAILURE

Glossary

References

About the Author

Index

Business Exit Planning

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Copyright © 2011 by Les Nemethy. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions.

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Library of Congress Cataloging-in-Publication Data:

Nemethy, Les.

Business exit planning : options, value enhancement, and transaction management for business owners / Les Nemethy.

p. cm.—(Wiley finance series)

Includes index.

ISBN 978-0-470-90531-9; ISBN 978-1-118-02297-9 (ebk); ISBN 978-1-118-02295-5 (ebk); ISBN 978-1-118-02296-2 (ebk)

 1. Sale of business enterprises. I. Title.

HD1393.25.N46 2011

658.1′64–dc22

2010053528

To my father

Preface

Over the years, I have spoken to thousands of business owners and investors on the subject of buying or selling businesses. It has become apparent to me that there is a real need for business owners to better understand how to go about planning and managing their Business Exits. While there are thousands of books on the subjects of Mergers & Acquisitions (M&A) and corporate finance, these are generally aimed at M&A or finance professionals, not at business owners. This book is designed to fill that gap. Targeted to business owners, it covers both Business Exit PlanningandTransaction Management.

This is not a textbook. It does not go into tremendous detail on any subject, but rather gives a bird’s eye view of what you, as a business owner, need to know to plan and execute your business exit. Entire tomes could, and indeed have been written about Management Buyouts, Initial Public Offerings (IPOs), valuations, and so on. But in giving very brief introductions to these and many other subjects, my goal is to give you enough information (in an easily readable format) so that you can decide for yourself whether a particular subject warrants further investigation.

The generality of this bird’s eye view is also reflected in the fact that I don’t analyze the subject of planning and executing Business Exits within the context of any particular legal jurisdiction. I will look at universal themes and issues, rather than provide a detailed roadmap for a particular company within a particular legal jurisdiction. It has been a challenge to give meaningful advice in the absence of the legal context in areas like tax or estate planning. Nevertheless, most of the content should be applicable to any country; but please, consult legal counsel and other advisors before taking any concrete action.

I have done my best to illustrate the principles set out in this book with real-life examples. I use miniature case studies, based on personal experience, throughout the text. The majority of these are in the context of Transactions or assignments carried out by my firm, Euro-Phoenix Financial Advisors Ltd. The case studies themselves generally don’t reveal sufficient information to identify the companies or individuals in question. Although our Confidentiality Agreements have expired in the majority of instances, we respect the confidentiality of our clients above and beyond the minimum legal requirement. In one or two cases where I thought the identity might be of particular interest, I obtained the consent of the company.

I do not claim originality for the ideas expressed in this book, as can be seen from the sources quoted in the Endnotes. What will be of use to you, as a business owner, is the bird’s eye view and the way in which the information is synthesized and illustrated with relevant case studies and a glossary of frequently used technical terms.*

This book is designed for owners of what I would call ‘mid-sized’ businesses. These are typically businesses that have minimum values in the range of $10 million to $100 million, although I am the first to admit that this range is arbitrary. Businesses with values smaller than $10 million often resort to business brokers rather than corporate finance or investment-banking-type advisors. Some do not use advisors at all (other than legal advisors) because the advisory fees would consume a large percentage of the Transaction revenues. It is particularly challenging for owners of such small businesses to obtain quality advice at a reasonable cost, given the size of the deal in question. This book is a good starting point.

Businesses with values larger than $100 million are at the other extreme: they typically have numerous investment banking or corporate finance relationships, and are usually more sophisticated in their corporate finance knowledge than small and mid-sized firms.

As already mentioned, this book deals with two major subjects: Business Exit Planning (presented in detail in Part I), followed by Transaction Management—what a business owner needs to know in managing the exit Transaction—(covered in detail in Part II).

I have heard the argument expressed that a book on Business Exit Planning should not cover Transaction Management. After all, there are many other methods of exiting your business than an outright sale. There are two reasons why I ultimately opted to include Transaction Management in a tome on Business Exit Planning. First, for mid-sized businesses, sale is probably the most frequent form of exit, and in a chess game it is always good to plan several moves or alternatives in advance. And second, exits other than sale (such as Management Buyout or transferring ownership to the next generation) will also involve a Transaction of sorts. A book that covers both Business Exit Planning and Transaction Management should equip you, the business owner, with a full overview of what’s involved in exiting your business.

That does not mean that this book covers everything you need to know. As the saying goes: the larger the circumference of light, the larger the circumference of darkness around it. Part of the value of this book is that it will make you more aware of possible blind spots, where expertise is lacking within your organization, or where you may need to seek further advice.

Just as planning the construction of a house takes longer and is not as dramatic or exciting as seeing the house grow before your eyes, so too, you will find that it may take some effort to work your way through the planning phase, whereupon you will be rewarded with a faster and better construction. I have built a number of houses, and have always found that the planning (architectural drawing, permits, etc.) takes two or three times longer than the actual construction itself. If you persevere and invest time to understand Part I, you are likely to achieve a better result with Part II.

Should you wish to contact me, please feel free to do so at the email address following, or follow me on Twitter or on my web sites.

Les Nemethy

Email:[email protected]:www.twitter.com/lnemethyEuro-Phoenix web site:www.europhoenix.com

Note

* Terms included in the glossary appear in bold when first used in a chapter.

Acknowledgments

I am grateful to the many friends and colleagues who contributed to this book and helped to make it a reality:

I would like to thank my colleagues at Euro-Phoenix: Iain McGuire, who reviewed the manuscript and contributed to the sections on Estate Planning and Taxation; László Nagy, who reviewed the entire document and, along with Daniel Blazic contributed primarily to the sections on Business Plan and Valuation; Andras Hanak, who reviewed the manuscript from a legal perspective; and Aron Negyesi, who assisted with research.

I would also like to thank those who contributed to editing the manuscript: Mary Murphy, Simon Mort, and Christine Ro, as well as Erika Szabó, who made numerous constructive suggestions with respect to the book.

Special thanks go to Paul Garrison, for providing some of the impetus for writing this book (and also reviewed the document), as well as to Dante Roscini, Brian Hoyes, and Hartmut Emans for their useful suggestions; to Doug Robbins for his insights into the M&A industry over the years; and to José Manuel Ferrer for providing information on the Codorniu company.

I would like to give special thanks to John and Tamara Scurci for their hospitality on the islands of Montserrat and Virgin Gorda (of the British Virgin Islands) and for making the writing of this book possible in such wonderful locations.

Disclaimer

This book is designed to provide business owners with general concepts for preparing and executing Business Exits. Every business, however, is different, faces different challenges, has different objectives, and is in a different legal jurisdiction. This book is not intended to encourage ‘do it yourself’ activities when it comes to selling a business or planning an exit. None of the statements set out in this book should be relied upon as professional advice to form the basis of a Business Exit. Readers are urged to seek legal, accounting, tax, financial, and other professional advice, as appropriate.

Foreword

For any company, a change in ownership structure is an extraordinary event and the decision regarding when and how to exit the business is among the most important that the controlling shareholders have to make. The exit can take many forms: will it be total or partial? Will it be through the public or the private markets? Will it be through the injection of new capital or the sale of existing shares?

These decisions are made more involved by the presence of multiple shareholders. But for many small and medium-sized businesses, where the ownership structure is less complex, the decision maker is often not only the main shareholder but also the main executive and the operating leader. He or she may have founded and grown the business or inherited it from previous generations, making the responsibility for the decision all the more burdensome.

The result is that a change in ownership is generally emotionally charged and has far-ranging consequences for the business owner from a professional, financial, and personal standpoint. The decision impacts the individual and his or her estate, the company, its management, its employees, and all of the other entities associated with the business. If the owner is also the manager, the issues of transition and of his or her involvement after a financial transaction are central to the very continuity of the firm.

In more than two decades as an international investment banker I was able to verify that the issues and the process shareholders face in a Business Exit are remarkably similar regardless of size, sector, or geographic location. Yet even with these similarities, planning and managing an exit is a highly complex undertaking.

The consequence for smaller enterprises is that this is not a do-it-yourself endeavor. Working with advisors is inevitable in order to deal with the process efficiently, identify and negotiate with the right counterparties, follow the appropriate procedures, abide by the varying rules and regulations, and conduct a transaction that leads to the best outcome.

This book not only helps to maximize value, but also assists with the countless nonfinancial aspects which must be examined in the overall scheme of business exit. An entire industry of advisors revolves around shareholders who are planning a transaction. Large companies tend to have established relationships with investment banks and produce deals of sufficient size to allow them to receive high quality advice on a regular basis. But high quality advice is costly and can be challenging for owners of smaller businesses to obtain. This book represents a very good place to start.

Many books have been written regarding mergers and acquisitions, initial public offerings, leverage buy outs, and other forms of partial or total change in ownership. This book is unique in several respects: it is primarily written for owners rather than for advisors, it is practical rather than theoretical, it synthesizes complex information in an engaging and easy-to-read manner, and it is rich in real-life case studies.

I have known Les Nemethy for 40 years and I have followed his career as an entrepreneur, as a government official in charge of Hungary’s privatization program as a senior manager at the World Bank, and then as an investment banker. His successful firm, Euro-Phoenix Financial Advisors Ltd., has given advice to hundreds of companies, making his experience particularly relevant to the topic and the case studies so insightful.

The book gives a very complete overview of the issues involved in business exit planning, identifies the critical decision making points, describes how to choose and work with advisors, warns about the possible mistakes in the process, and explains how to avoid these mistakes. I believe it is one of the best and fastest ways of getting a clear grounding on one of the most important and complex processes that a shareholder will face in the life of his or her company.

Dante Roscini

Senior Lecturer, Harvard Business School

Former Global Head of Capital Markets,

Merrill Lynch

Introduction: The Challenge of Exiting Your Business

All the world’s a stage,

And all the men and women merely players.