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Ownership Transition. Overview of 4 Ownership Models: 3 rd Party, Management Buyout, ESOP and Family. Overview. Identify Why Planning For Ownership Transition Is Important Identify Transition Options Available, And Discuss The Pros And Cons Of Each. Selecting The Right Option.

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ownership transition

Ownership Transition

Overview of 4 Ownership Models:

3rd Party, Management Buyout, ESOP and Family

  • Identify Why Planning For Ownership Transition Is Important
  • Identify Transition Options Available, And Discuss The Pros And Cons Of Each
ownership transition process

Selecting The Right Option

Evaluating Those Options

Identifying Appropriate Transition Options

Understanding That Options Are Available

Ownership Transition Process
why plan for ownership transition
Why Plan For Ownership Transition
  • To Determine Whose Interests Need To Be Considered
  • Anticipate Liquidity Issues Facing Owners
  • Reduce Estate Tax Liability
  • Impacts Cash Flow Available For Retirement
  • Impacts Net Amount Available For Heirs
why plan for ownership transition5
Why Plan For Ownership Transition
  • Impacts How You Organize And Operate Your Company – Are You Too Busy Tending To Day To Day Business
  • Proper Planning Will Save Time And Money During A Business Succession Event
  • Issues Apply To All Types Of Business Succession Transactions
mistakes to avoid
Mistakes To Avoid
  • Put Off Or Avoid Decisions (Ostrich Approach)
  • Assume Insurance Will Take Care Of Everything
  • Assume All Companies Are Saleable
  • Pre-Conceived Ideas Without Considering All Possible Options
  • Transferring Ownership To The Wrong People
when to start planning
When To Start Planning
  • How Early Should You Begin Thinking About Transition
  • Is Now The Right Time To Transfer Ownership
  • Planning Saves Taxes
exit strategy considerations
Exit Strategy Considerations
  • Market Conditions
  • Maximization Of Value
  • Sentimental Attachment To The Company, Or To The Employee Base
  • Potential For A Family Member To Manage The Company
  • Are There Family Issues That Need To Be Considered
why valuation is important
Why Valuation Is Important
  • Critical Component Of Planning Process
  • Provides Business Owners A Reality Check
  • Helps Identify Value Drivers And Value Detractors
internal transition options
Internal Transition Options
  • Transition Within The Family
  • Management Buyout
  • Employee Stock Ownership Plan
  • Hire A CEO To Run The Company
external transition options
External Transition Options
  • Third Party Sale
  • Recapitalization
  • Sale of Minority Interest
  • Initial Public Offering
third party sale
Third Party Sale
  • Advantages
    • Capture Real Value Of Company
    • Able To Exit The Business Cleanly
    • Create Career Opportunity For Employees
  • Disadvantages
    • Lengthy Process
    • Due Diligence And Negotiation Process Can Be Stressful
    • Potential Post-Transaction Contingencies
third party sale13
Third Party Sale
  • Financial Buyers
    • Individual Investor
    • Private Equity Group
  • Strategic Buyers
    • Related Industry/Sector
    • Competitor
    • Portfolio Company Owned By A Private Equity Group
third party sale strategic buyers
Third Party Sale – Strategic Buyers
  • Pros
    • Synergies Available
    • High Multiples Available
    • Do Not Always Need Management Talent
    • Can Deliver Requirements For Growth (i.e. Capital, Markets, Technology)
    • Will Often Entertain Earnouts
    • Provides Career Path For Management And Employees
third party sale strategic buyers15
Third Party Sale – Strategic Buyers
  • Cons
    • Slow To Do A Transaction
    • Integration Can Be Painful
    • Do No Expect To Stay Long
    • Upside In Deal May Be Tied To The Overall Acquirer
    • Process May Be Painful
    • Shares In Acquirer May Be Restricted
    • Employees And Business Can Be Lost
third party sale financial buyers
Third Party Sale – Financial Buyers
  • Pros
    • Can Close Deal Quickly
    • Informal But Quick Responses
    • Opportunity To Stay Involved And Have Upside
    • Management And Employees Can Get Options
    • Business Will Retain Its Identity
third party sale financial buyers17
Third Party Sale – Financial Buyers
  • Cons
    • Want A High Rate Of Return – Results In A Lower Price
    • Very Driven – Slow Life Gone
    • Require Exit Strategy
    • Possible Loss Of Control
    • Non Performing Friends And Family Employed Are Threatened
third party sale18
Third Party Sale
  • Deal Structure
    • Merger
    • Stock Sale
    • Asset Sale
  • Corporate Status
    • C Corporation
    • S Corporation
third party sale expectations
Third Party Sale - Expectations
  • Price
  • Terms
  • Structure
  • Timetable
  • Fees
third party sale consideration
Third Party Sale - Consideration
  • Forms Of Consideration
    • Stock
    • Cash
    • Notes
    • Combination
  • Buyer Protections
    • Earnouts
    • Holdbacks
    • Escrows
    • Indemnifications
family transition
Family Transition
  • Advantages
    • Keeps Business In The Family
    • Parents Can Be The Banker
  • Disadvantages
    • Be Sure Children Can Run The Company
    • IRS Issues
family transition22
Family Transition
  • Gifting Or Bequests
    • Family Limited Partnerships (FLPs)
    • Limited Liability Companies (LLCs)
    • Closely Held Stock (Voting, Non-Voting)
  • Sale Of Assets Or Stock
  • Transfer To Family Members
    • Fair Market Value And Terms
    • Adequate Disclosure
    • Valuation Discounts
  • Advantages
    • Can Be Done In Stages (Less Leverage)
    • Transition Of Financial And Management Control Can Be Made Independently
    • Draws On Pre-Tax Cash Flow
    • Capital Gains Taxes Deferral
  • Disadvantages
    • Perceived Complexity
    • QRP Restrictions
esops why sell
ESOPs – Why Sell
  • Begin The Diversification Process
  • Reward Employees For Their Efforts
  • Philosophical Belief In Employee Ownership
  • Take Advantage Of The Tax Benefits
  • Excellent Opportunity For Estate Planning After Transaction Is Completed













Loan #2

Repayment #1



Repayment #2

Repayment #3

Loan #1


  • Benefits To Shareholders
    • Ready Market To Sell All Or A Portion Of Their Stock (Always A Stock Deal)
    • Tax-Free Rollover Of Sales Proceeds
    • Maintain Control Of Corporation, If Desired
  • Benefits To The Company
    • Increases Productivity
    • Repay Principal Portion Of Debt With Pre-Tax Dollars
    • Prepay Loan With Tax Deductible Dividends
    • Increases Cash Flow
    • Exclusion Of Federal Income Taxes (S Corporations Only)
    • Keeps Company Rooted In The Community
  • Benefits To Employees
    • Own A Piece Of The Company And Share In The Company’s Growth At No Cost To Them
    • Improves Morale
    • Account Balances Grow Tax Free
    • Can Diversify Accounts, If Desired
management buyout
Management Buyout
  • Advantages
    • Uses Corporate Assets And Earnings To Finance The Transaction
    • Diversification For Shareholders
    • Continuity Of Management
  • Disadvantages
    • Balance Sheet Stress
    • Owner Will Not Receive Highest Price
    • Management Will Need To Bring In Equity
management buyout31
Management Buyout
  • Description Of Ideal Management Buyout Candidate Company
    • Second Line Management Team In Place
    • Asset Intensive
    • Minimal Debt
getting started
Getting Started
  • Form An Advisory Team
  • Conduct An Ownership Transition Analysis