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Avoiding Unwanted Surprises

What to do to stay in control during a third-party sale


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For some business owners, a third-party sale is the best option for a successful exit. Third-party sales are popular because owners often believe they can get the most money in as little time from a third-party buyer. They might be right. But what they may not consider is how little control they have over their businesses, schedules and futures once the process begins.

Consider the following case study:

After 35 years of building a successful manufacturing company, which employed about 100 people, Lemont Lemieux was ready to retire. Always one to do it himself, he had hired a business valuation specialist, found an interested buyer, assembled a deal team consisting of a broker, deal attorney and his company’s CPA and, most importantly, told his wife, about his intentions to sell to an outside buyer before he began the process. Neither of their children had any interest in the business, and the Lemiuex’s were ready to travel.

One day, Lemiuex’s business broker called him and said, “We worked out a final deal that will get you the $7 million [after taxes and fees] that you said you wanted. The buyer said he wanted to have this deal finalized as soon as possible so they can start integrating your systems into theirs and begin the management reorganization process.”

“Management reorganization process?” Lemiuex asked.

“Right. The buyer plans to shut down your local operations. They’ll move your equipment and maybe a few employees to their nearest facility, where there’s excess capacity. After their site visit at your plant, they identified three employees from your company they want to interview to oversee operations in that line, so one of them will most likely get the job.”

“Why wasn’t I involved in this discussion?” Lemiuex asked. “I never wanted to have operations here shut down. I’ve got a lot of long-time employees. I’ve got managers that built their careers working their way up in the company.”

“You never told me about wanting to protect your employees. You’ve only talked about wanting to get out this year, so that’s what we aimed to do,” replied the business broker.


DIPPING A TOE IN THE EXIT PLANNING POOL


This situation is only one example of how third-party sales can be trickier and more complex than owners expect because there are factors that owners simply don’t consider. The deal team handles most of the process and does everything it can to get as much money on the best terms possible. But the deal team may not be focused on an owner’s broader objectives for the sale. With this in mind, there are three things you can do to stay in control of the process throughout:

  1. HAVE YOUR EXIT OBJECTIVES IN MIND

A thorough assessment of your complete goals and objectives uncovers issues and interests you may not realize are important.

  1. BUILD + PRESERVE YOUR MANAGEMENT TEAM

A strong, well-trained management team will affect business value, transaction terms, your leverage in the deal, and maybe even your community.

  1. CREATE A COMPREHENSIVE EXIT PLAN BEFORE PUTTING THE COMPANY ON THE MARKET

Planning in advance for a third-party sale shines light on the connections between your exit and the future for your business, your employees, your family and possibly your neighbors.


The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.

Article presented by Karen Jessey, ChFC®, CLU®, CFP®, RCIP®, CExP™, Karen.Jessey@MyStrategicWealth.com, a Member of BEI’s International Network of Exit Planning Professionals™. ©2018 BEI

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 6455 South Yosemite Street Suite 300, Greenwood Village, CO 80111, 303-770-9020. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Strategic Wealth Partners is not an affiliate or subsidiary of PAS or Guardian. 2018-65628 Exp. 8/20 2) This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.

PAS is a member FINRA, SIPC

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