Business Owner
Financial Sale

How do we sell a partial interest of our business to a private equity firm?

Situation Overview

Mark, 45 years old, is the CEO of a rapidly growing aerospace company. His grandfather founded the company and was the first CEO. His father led the second generation, and now the responsibility is under Mark's stewardship. While Mark would like to work another ten years or more, the other shareholders in his family would like to sell a portion of their interests for diversification and estate planning purposes. In addition, in the last four years, Mark has made two acquisitions of smaller competitors and feels that there is additional opportunity in the market, which will require investment capital. Mark's wife, Janelle, is not involved in the business on a day-to-day basis, but Mark has relied on her advice and judgment since he began working in the company.

Assessment

Mark was referred to Capital Planning by his close friend. Even though his primary objective was the business strategy, he realized he also needed to look at the transaction from a personal wealth planning perspective to meet the objectives of the family shareholders. The initial steps of the process began with a Shareholder Assessment. The primary concerns expressed by the shareholders were:

  • How do we sell a partial interest of our business to a private equity firm?
  • If we sell a portion of the business, can we still maintain control?
  • Should we contact and negotiate with the private equity firms directly or through a representative such as an investment banker?
  • How can we integrate the personal wealth management needs of the shareholders with the growth objectives of the business?

Outcome

Capital Planning led Mark's family through a strategic approach that systematically addressed each area of the family's concerns and developed a plan addressing their most pressing issues.

Shareholder Vision & Goals

Several shareholder meetings were facilitated to clarify the vision and goals for the business. In addition, an educational process ensued regarding private equity, the sale process, factors that will impact the business, and personal wealth plans.

Investment Bank Selection

After extensive discussions with Capital Planning, Mark decided to engage an investment bank to represent the business. He agreed that an experienced merger and acquisition firm could bring significant value to the process and provide a competitive environment. Capital Planning arranged interviews with three top investment banks in the Pacific Northwest, and a selection was made. After engaging the investment bank, Mark was led through a systematic process to meet the business objectives.

Investment Bank Process

In the first three months, the investment bank helped Mark explore his growth plans and capital needs. Three options were identified, including debt financing, private equity, and a strategic sale to a public company. After extensive planning and discussions, Mark realized that a partial sale of the company to a private equity firm, XYZ Private Equity, was the best alternative.

The Sale

After an 8 month process, XYZ Private Equity purchased an interest in the business. Mark and his executive team continued with their favorable executive benefits package, and equity incentives were added. Additional capital was available for acquisitions and growth. The objective of XYZ Private Equity was to hold their stake in the company for five to seven years and then sell to a strategic buyer or another private equity firm. Mark and his family retained a majority interest in the business, but were able to sell enough shares to meet their liquidity, diversification, and estate planning objectives.

Shareholder Wealth Planning

During the shareholder meetings, investment and retirement planning was discussed. Prior to the partial sale, Capital Planning assisted each shareholder in updating their wealth plans within the context of the new business structure. The planning took into consideration annual income needs, major expense planning, income taxes, charitable objectives, and estate considerations.

Real Life Solutions are for educational purposes and are not actual clients. These case studies are based on similar circumstances experienced by our clients. To learn more about our process, see Investment Management and Wealth Planning Services.

Deliverables

Proactive Wealth Management

Family members utilized Capital Planning's wealth management services to monitor and update their individual personal financial plans:

  • Goals & Objectives
  • Cash Flow Planning
  • Compensation & Benefits
  • Investment Management
  • Tax Planning
  • Risk Management
  • Estate Planning
  • Wealth Administration

Investment Management - With the partial sale of the company, proceeds were available for investment. Assisting each family individually, Capital Planning designed a custom portfolio based on return objectives, income needs, risk tolerance, and income tax considerations. Traditional and alternative investment strategies were selected to create a well-diversified portfolio. Ample reserves were maintained in bank accounts to meet short-term cash requirements.

Personal Financial Website - A personal wealth management system was established for each family member to keep their plans on course. It provided consolidated account reporting, income and expense tracking, document storage, wealth management reports, mobile access, and wealth plan alerts. Wealth planning reports were made available including net worth, asset allocation, investment performance, and tax information.

Experienced Advisory Team - The Capital Planning team is led by a seasoned financial advisor and supported by a dedicated client service associate. As needed, other team members are available with expertise in financial advising, portfolio administration, and investment research. Regular reviews will be conducted to make adjustments and update the wealth plan.

Events

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