Ownership Transition Planning: A Second-Generation Business Owner Keeps Minority Stake

After leading a successful company, many owners age out of the business and understandably begin to consider retirement. Some owners want to scale back from the day-to-day rigors of full-time operations. Most middle market business owners are still passionate about the company but may not be able to maintain that high level of stamina that a thriving organization requires to continue evolving in a competitive marketplace. However, they can’t imagine not working at all and want to stay connected or involved. This is why succession planning, or exit planning, is critical for middle market business leaders.

As the Baby Boomer generation looks toward retirement, business owners from this demographic are beginning to sell their companies. In fact, 80-90% of their wealth is tied up in their businesses, according to the Exit Planning Institute’s State of Owner Readiness Survey. The average age of a Baby Boomer today is 60 years old (U.S. Census Bureau); as this cohort ages, opportunities to buy their businesses will increase.

Footprint Capital Client Case Study

  • Engagement Type: Sell-Side
  • Industry: Business Services
  • Ownership: 1 Owner, 60 years old, 2nd generation owner
  • Objective: Retirement

A recent Footprint Capital client fits the above profile. This second-generation business owner sought a gradual transition into retirement. He was willing to work in his current, full-time capacity for another 1-2 years, after which he hoped to step back to a part-time, less-immersive role in the company for another 3-5 years. Our team worked closely with this owner to pursue his goal. Following a comprehensive sale process, the owner sold to a private equity buyer that allowed him to retain a minority stake (equity) in the company, keep the business name, retain all employees, and provide support to grow the business. They are in the process of hiring a new President (this started 9 months following the close), and our client will move into a strategic role, where he will remain as an integral part of the company, yet achieve his objective of partial retirement in the near future (and full retirement long-term).

How did we help this middle market business owner realize his exit planning objectives?

Footprint Capital worked closely with our client and leveraged our trusted industry advisors to ensure that his business was well-positioned to seek a financial buyer. Moreover, we invested time to get to know our client on a personal level, to understand his motivation, and to pursue realistic exit planning options. In the end, we secured a buyer who offered the right fit. Our client agreed to work on a full-time basis after closing. He also committed to the viability of business by rolling a meaningful equity stake into the deal.

Below are several factors Footprint Capital evaluated in the potential sale of this middle market company. The client mentioned herein was firing on all cylinders when we took the business to market. As such, we were able to run an efficient sales process and deliver on his goals.

For middle market owners considering a sale, below are some guidelines that ensured this particular client was well-positioned for a sale and that internal and external business dynamics were desirable to a financial buyer.

Client Business Profile and Positioning

  • A strong, well-tenured management team
  • Clean financial statements with current annual audits
  • A low customer concentration, i.e., one single customer is not generating all of the sales revenue; they have a diversified customer base and revenue streams
  • Organized contracts with customers and vendors
  • Streamlined and documented processes
  • Optimized and up-to-date equipment, hardware, and IT operating systems
  • A clear understanding of the value of the business, how it is valued, and what could be done to improve the valuation of the business
  • Acute knowledge of competitors, the marketplace, and industry trends

If you own a company and are curious about your options, please Contact Us.