The vale of third-party consultants in planning crucial exit strategies

April 27, 2022 | Colleen O’ Connell-Campbell


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Let’s talk about the drivers of business value! (Of course)

(Specifically delving deeper into the 8 drivers of company value if you’re thinking of selling a business in 5-10 years. These are measurable factors that help make an impression on a new business acquirer.)

I continue in the detailing of the drivers, with the help of Todd Perry, Vice-President at Kehoe Marine Construction. This is part of a 5-week deep-dive into value building in your business in the form of a ‘masterclass’.

Specifically in today’s note, I’d like to focus on exit strategies to sell a business successfully. One key takeaway Todd and I ask you to think about is how third-party consultants help prepare crucial exit strategies for a successful business buyout.

Different ways to operate and grow a business

If you’re an audio person, you’ll find the episode here, the way Todd tells it. If not, read on: Todd relied on PwC as external experts to help them negotiate their business sale terms. He learned early that typical business transactions often involve promises made and then last minute negotiations. Third party consultants help business owners and shareholders to remain objective about the brand they built when it is time to sell.

Todd remembers how their potential suitors, a private equity firm that bought McIntosh Perry, took the business national from being a regional business. This is when entrepreneurs, business owners, shareholders, and many others learn that there are different ways to operate the very same company. It is possible for the newly merged brand to grow at an exponential rate. Some of the new methods introduced to the McIntosh Perry merger changed the demographics of the company entirely where Todd found his active role reduced considerably while he still enjoyed the equity benefits. Since the acquiring company operated on a national level, they have since extended McIntosh Perry’s business into the energy sector. 

Lifestyle changes you should expect to make as a non-decision-maker in your business

Since Todd was the President of McIntosh Perry for a long time, he obviously had decision-making abilities. This had an impact on many lives in and around his community. For example, he was able to employ his friend's children as summer interns to work in his company. He has helped several clients at a personal level. However, with the buyout of McIntosh Perry, the scenario changed. Todd was no longer the decision-maker who could instantly help others. While it may sound like a small thing, the proof was in the fact that he and his family got invited to industry events and fundraisers less and less.

Todd says, "All of a sudden, I don't have the authority to make that hire any more. And so now my wife in the grocery store has to say to a friend, ‘you know, I can't do anything to help with that’. ‘What, did the company go out of business?’ her friend would ask. ‘No, it's just, you know, we sold and we can't make that decision. That was an impact on her that we weren't expecting, because you're not the person in authority anymore."

This is a major lifestyle change that business owners and entrepreneurs should be prepared for if they want to sell their company. Nevertheless, with it comes the opportunity to use the free time for yourself, to do the work you really want to do. Todd says that nobody usually tells you these ‘secrets’. Lifestyle changes can sneak up on you rapidly. Awareness is the only key to being prepared for such situations.

Cash Rich Exit Strategies for business shareholders

Todd says that it is essential to thoroughly interview potential suitors. Business pillars like the existing client base, company culture, employee engagement, development programs, track records, and transparency play a pivotal role when selling a business. He recalls the private equity firm manager sharing their honest intentions in the very first meeting. The manager also emphasized the need to recognize regional goals when expanding a business to national levels, something that was important to Todd. And this is where PwC as the third party consultant helped them prepare exit strategies to sell their brand effectively. Documentation of business records plays an essential role to facilitate a smooth business transaction, Todd says. 

Todd demonstrated his sense of responsibility and chose the benefit of every shareholder of McIntosh Perry before he sold the company to the private equity firm. Not only did he secure his own financial freedom but also ensured the future of his co-shareholders at the time of exit. The deal brought in 80% cash, 15% earn-out over a course of 3 years, and a 10% equity. All 24 shareholders are actively employed with the newly merged company, while Todd found a part-time arrangement with a marine construction company and joined as the Vice-President.

For more information on cash-rich business exit or transition to new business roles successfully, please listen to Todd Perry's conversation with Colleen O'Connell-Campbell.

Listen to the entire podcast here:

https://iamamillionairesonowwhat.libsyn.com/ep223-cash-rich-exit-strategies-for-business