You have worked hard to build your business and make it successful. You are proud of what you have achieved and you still have many ambitions for the future. But you also want more security, freedom and flexibility. You want to secure a piece of your wealth without selling your business outright. You want to retain control, but also benefit from the knowledge, network and capital of a larger partner. In short, you want the best of both worlds. How can you make that happen? One possible solution is a pre-exit.
A pre-exit is a partial sale of your shares to a private equity party that helps you continue to grow your business. You stay involved as an entrepreneur and shareholder, but you also take home a piece of the profits. So you can enjoy your success now, while also working toward an even higher exit value in the future. Thus, a pre-exit can be a win-win situation for you as an entrepreneur and your company.
What are the reasons for a pre-exit?
There may be several reasons to consider a pre-exit. Here are some common motivations:
- You want to grow your business and reach your dot on the horizon. You have a vision for your company, but you lack the resources, expertise or market access to make it a reality. By selling part of your shares to a partner who can support you in your ambitions, you can scale, innovate and internationalize faster. You can make use of more financial clout, operational knowledge and customer base. In this way, you can take your company to a higher level and strengthen your market position.
- You have reached a certain age and you want to derisk a piece of your assets. You've invested a lot of time, money and energy in your business, and you want some return on that now. You don't want to wait until you retire or do a complete exit. You want to realize some returns now, so that you have more financial security and more room to do other things. For example, to pay off your mortgage, help your children, buy a dream home or take a trip around the world.
- There is a lot of market potential or influences in the market that you want to take advantage of. You see opportunities to grow your business, but you need to act quickly to stay ahead of your competitors. For example, there is high demand for your product or service or there are new technologies or trends you can capitalize on. By doing a pre-exit, you can raise capital to accelerate your growth and increase your value.
What are the benefits of a pre-exit?
A pre-exit can have several benefits for you and your business. Here are some key benefits:
- You can cash in some of your assets now, while also having the prospect of a higher exit value in the future. You don't have to put everything on one card, but you can spread your risk and optimize your returns. You can enjoy your success now, while also securing your legacy.
- You can maintain control of your business while also benefiting from working with a larger partner. You don't have to give up your entrepreneurship, culture or vision, but you can take advantage of your partner's synergies, economies of scale and expertise.
- You can better prepare your business for a possible full exit in the future. By doing a pre-exit, you can further professionalize, structure and optimize your business. You can streamline processes, put administration in order, take care of legal matters and increase performance. This will make your company more attractive to potential buyers and improve your negotiating position.
A pre-exit can be a great way to cash in on the value of your company and secure your legacy. But it is also a big decision that must be well thought out. As such, a pre-exit is not a preconceived plan, but the insight that emerges during an M&A process. If you would like to learn more about the opportunities, pitfalls and best practices of a pre-exit, please contact us. We would be happy to help you work with you to make the best choice for you and your company.
