With the July sale of the majority stake in Terrapin Beer Co., just the latest in a line of growing craft breweries looking to acquisitions, one can’t help but ponder the future of their own business.
Many companies invest in making a great product, increasing sales and pursuing other business objectives, but in the craft brewing space, it often seems taboo to talk about selling. Let’s pull the plug on that once and for all – everybody sells! Whether it’s now or 20 years from now, you are not going to be the owner of your business forever.
Sometimes the intent to sell is identified early in a company’s lifecycle. Other times, the decision is dictated by succession planning, market conditions, strategic opportunities or other external forces. Anyone that says they are “not for sale” will generally toy with the idea that if “someone backs up the armored car” (makes them an offer too good to refuse) then of course they would at least listen.
The reality is that if you own an interest in any business, at some point, you will sell that interest. Whether you are a passive investor or an owner/shareholder, you should always be thinking about your exit strategy. There are many ways this can be accomplished, depending upon your own set of circumstances.
What are my options?
For example, if my interest is in the form of Anheuser-Busch InBev stock, my decision as an individual investor to sell my stock is essentially my exit strategy. It is very simple to execute; I simply call my broker and make a trade. However, if I have a closely held business, my exit starts to get a little more complicated. I have many options.
• Family Member/Sole Investor: I could sell my interest to another investor, family member, leave it to my kids, etc. In these instances, my decision (depending upon my overall ownership of the company) really does not affect other shareholders or the business itself.
• Redemption: I could sell my interest back to the company itself, as a “redemption.” The company might consider this option as a means to help shareholders sell stock without necessitating a broader transaction for the company.
• Merger or Acquisition: I might also decide to merge/sell to another company. This could be a merger with another company or an outright sale of the company stock or its assets to another company or investor group.
• ESOP Plan: I could sell my interest to an Employee Stock Ownership Plan (ESOP). This effectively could transition some level of ownership to the current employees of the company and provide the selling investor the ability to sell their stock. Here’s some ESOP advice from our archives.
• Management Buy Out: One or more larger shareholders may decide to sell the business to an existing management team, in a “Management Buy Out.”
Planning for every situation
But what if I pass before I sell? Is there a plan in place for the company to redeem my shares, let them pass to my heirs or should the company have some type of buy-sell arrangement (with a funding arrangement preferably). These are just some of the alternatives by which a shareholder or group of investors can sell their interest in a company.
When it comes time to sell, every shareholder wants to maximize their profit on the sale, which is accomplished by maximizing the overall value of the company. One key ingredient is to plan for the variety of ways that shareholders may sell their shares. The time to think about these alternatives, and how the company is involved in each one, is NOW.
You should be thinking about:
- What your personal exit strategy will be,
- What your ideal time frame for exiting is, and
- Whether your exit is an event isolated to you or will be part of a larger corporate transaction.
As a key leader in the company, you should not only have a regular pulse on the exit alternatives available to your significant shareholders, but also understand their intent and window of time for selling their interest. Each of these scenarios is unique and has different ramifications to the company and its shareholders. Contemplating and planning for various alternatives is a useful exercise and will help all shareholders maximize their return, when it comes time to sell. You should always be thinking about what your exit signs look like and how each exit may impact you and the company.
So, there we have it – everybody sells. You should be thinking about your own set of exit strategies. If you would like to get this dialog going at your company or share war stories from your own experience, please post a comment below. We’d love to hear from you.
Pat Tuley, CPA, is a partner at Porter Keadle Moore in Atlanta. He can be reached at [email protected]. Founded in 1977, Porter Keadle Moore (PKM) represents leading public and private companies across the country in the financial services, technology and emerging business niches. In addition to traditional audit and tax services, our specialty areas include mergers and acquisitions, succession planning, IT assurance and consulting, cyber security and other risk advisory services.