Is a Partial Exit the Right Business Exit Strategy for You?
Every business owner in the intelligence, aerospace, and defense industry inevitably has to address the question of how to pass off the reins of leadership. Perhaps you will want to retire, or simply pursue other business endeavors. The extent to which you prepare for such a transition will have a direct bearing on the monetary reward – and personal satisfaction – that you will realize after years of hard work building a profitable business.
Additionally, one thing founders and owners should consider is the decoupling of your personal/family risk and the company decision making processes. Since many founders have the bulk of their personal worth buried in their company, it becomes very difficult to make the thoughtful strategic decisions for your company without also considering the personal risk. As a result, it can be difficult to make the needed and correct investments in the company itself. Taking chips off the table allows you to separate that anxiety and focus on making good strategic decisions for the company on its merits alone. Allowing you the ability to sleep at night knowing your family plan isn’t intertwined.
Preparing to leave a business on your own terms necessitates the creation of a sound business exit strategy. And who better to help you create that strategy than High Stakes Partners? Our team of highly skilled defense advisory experts can help you develop a business exit strategy that fully allows you to achieve your exit goals. The following is a brief look at a particular business exit strategy that most often appeals to individuals who desire to keep working, but with less of a company ownership interest.
The Partial Exit Defined
Leaving a business is by no means an all or nothing proposition. At High Stakes Partners, many of those who seek out our exit planning expertise desire to strike a balance between the invigorating challenges of company management with the pleasures of retirement. A “partial exit” is simply a type of business exit strategy that would allow you to take chips off the table without having to quit working entirely. Pursuing a partial exit can also make the eventual full transfer of company ownership easier when that becomes necessary.
Bring on a Majority Investor and Recapitalize
Another way to pursue a partial business exit strategy is through recapitalization. Generally speaking, recapitalization is when a controlling stake in a company is sold – typically to a private equity group. The business owner will retain a minority stake and continue to manage the company much as before.
Recapitalizing a company has many attractive benefits but also a number of potential pitfalls that are well worth understanding. Let the defense advisory experts at High Stakes Partners walk you through whether recapitalization or some other strategy is the right approach for you and your company.
This is typically a Private equity fund or other large institutional investor.
Bring on a Minority Investor
one way of partially exiting a business is to bring on a minority investor. While not as common as bringing on a Majority investor, it is an option that exists. In this situation, the company owner sells a small fraction – under 50 percent – of their ownership stake to another party or organization. Whoever then has this minority stake in the business can either elect to play a passive role in company affairs or be actively involved in day-to-day management, subject to your agreement and plan.
Examples of possible investors include partner companies, individuals, family offices, venture funds and even some private equity funds that specialize in this ( most require Majority stake though, so this is rare )
Relinquishing a minority stake in your company as a (partial) business exit strategy has certain advantages. First, it would allow you to liquidate some of your stock and use that cash for virtually any other purpose. Second, the minority owner could essentially be groomed to become a majority owner at some point down the road. And third, selling a minority stake can make it possible for you to bring in added expertise when needed while simultaneously relieving you of some of your managerial burdens.
This business exit strategy can, however, have some disadvantages. The main one is that whoever owns the minority state may exert influence over management decisions and the overall direction of the company. You are taking on a new partner. All Partnerships can be complex and nuanced, evolving away from the original intent.
We at High Stakes Partners will gladly help you explore the potential drawbacks of selling a minority stake in further detail.
Send High Stakes Partners a Message
Our team is passionate about business and would embrace the opportunity to help you with all your business exit strategy needs. High Stakes Partners provides a wide array of defense advisory services and is staffed by some of the country’s most highly experienced government contractor consultants.