Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
UPSIZE STAGES: EXIT STRATEGIES
08 :: Exiting partially or gradually
How to take some
money off table
while keeping hand in
If a business owner is looking to ease into retirement or if a company needs some cash to get through a down time one option would be a partial sale. It?s not an uncommon transaction and the structures are as broad as the buyer and seller want to be creative.
The benefit to the business of additional capital and new leadership can help push the company into unexplored business segments and new heights and some observers see such a move as selfless and a testament to the seller. Such a transaction can provide a business owner transitioning toward retirement a way to start backing away without diving into a work-free life.
However, sometimes business owners get more than they bargained for from giving up total control of their company. They need to recognize that it?s hard to find partial buyers that will come in for less than a majority ownership interest. The risk is that when new majority ownership takes control, especially if they are on-site, they might be less or not at all interested in how the seller has run things in the past, a scenario that could cause power struggles and other problems.
If the now-partial owner can deal with having less control, the buyout or recapitalization might work. In fact, such a deal can provide a second chance for firms that have been short on capital to achieve new performance goals. And it benefits the previous owner by monetizing part of the initial investment and moving forward with continued partial ownership.
However, giving up complete ownership also comes with strings attached. Many owners have a difficult time adjusting to playing second fiddle. In those cases it?s not unusual for a business owner that signs a deal to continue working for some period of time to have that bought out early.
While they aren?t common, a growing number of private equity funds or venture capitalists these days are showing some willingness to provide their expertise and capital while purchasing a minority business interest in exchange for a preferred stock offering or some greater-than-normal rights. These situations are being driven by the large amount of undeployed capital currently available in the market.
One scenario under which a partial exit might provide easier circumstances for the departing owner to swallow would be a case where multiple partners are all in different career stages. An older partner might be looking to move on while a younger one might be looking for greater control. A partial sale would allow for a smooth transition in that direction.
Another situation in which a gradual exit might make sense is transitioning the business to children or other family members. Under this situation it?s difficult for a parent to pass the business on right away, especially if the family?s entire net worth is wrapped up in the company. Under a partial exit the parent will still want to be involved in the day-to-day operations until they can find a way to cash out and step aside completely.
Most business brokers would say their approach to a partial sale doesn?t change that much from how they would handle a full-scale exit. As with any other exit strategy the options are limitless if the owner has planned ahead and has a willingness to be creative.
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
