So, what’s your company exit strategy?
Answering this question is the responsibility of any business owner who correctly recognizes that they won’t be in a leadership position forever. An important part of owning a company in the aerospace and defense industry is preparing for the inevitable business hand-off, whether that’s two years from now or in the far-off future. A sound company exit strategy should be systematically undertaken in partnership with a business exit planning consultant who is specially trained in how to maximize the value of your enterprise immediately prior to sale.
High Stakes Partners is a team of defense advisory experts who provide a wide range of company exit strategy services for defense contractors. Our overarching goal is to help each client achieve their exit goals while simultaneously ensuring the ongoing success of the company they had once led.
One company exit strategy that we’d like discuss here is the third-party sale. A third-party sale is when a company is sold to an outside party as opposed to family members or employees. With planning, selling to a third party has a number of potential advantages but also several possible drawbacks that a business owner who is considering this company exit strategy must be aware of.
Let’s look at the pros and cons of pursuing a third-party sale:
Pros:
Financial Security
The fundamental driving factor behind choosing a third-party sale as a company exit strategy is knowing that you will likely sell the entire company at closing. These are not partial exits. While you will probably need to stay on for a period of transition, these types of sales are often the ones chosen by owners who are looking to leave the company fairly soon.
Certainty of Close
Third party strategic buyer sales are the ones that are most likely to close successfully after a negotiation process. These deals fall apart less frequently than some of the more complex ones.
Tax Benefits
Depending on the circumstances, the proceeds from the sale of your company will likely be taxed as long-term capital gains and thus at a more favorable tax rate.
Cons:
Culture Change
Selling your company to a third party could bring about drastic changes in the company’s culture that you might not want to see. If preserving company culture is important to you, then you might want to consider pursuing a different company exit strategy.
Expertise Imbalance
The playing field is almost never equal in a third-party sale. Outside buyers often have greater expertise along with stronger legal and accounting firepower that could put you at a competitive disadvantage.
Market Taint
Arguably the biggest disadvantage of seeking to sell your company to a third party is the possibility of “tainting the marketplace.” This can happen if you put the company up for sale but later pull it off the market (for whatever reason). Doing so can potentially spook potential buyers and give your company a proverbial black eye that only makes it harder to sell later. Tainting the marketplace most often occurs when a business owner either fails to get a realistic business valuation or greatly underestimates how long a sale will take to complete.
Schedule a Consultation with one of our Defense Advisory Experts
It is virtually impossible for a business owner to start the company exit planning process too early. As such, we invite you to contact High Stakes Partners and get company exit planning ball rolling with the help of one of the highly experienced defense contractor business consultants on our team. High Stakes Partners specializes in federal compliance advisory and is standing by reading to help you establish an exit plan with confidence.