EXIT STRATEGIES The Good, The Bad, and the Timely
By /Jordan Whitehouse • Photos courtesy of California Sheet Metal Joe Isom and his business partner were in their mid-50s when they started thinking about their exit from California Sheet Metal. They weren’t ready to leave yet, but they knew the clock was ticking to make a plan that would secure their futures and that of their company. “We saw from our own research and talking to other people that it can take some time to make a transition or to sell your business,” Isom says. They were right. After talking to more people and exploring a third-party purchase, they finally landed on an employee stock ownership plan (ESOP) in 2013. This essentially means that they sold the company to all of California Sheet Metal’s employees, including union members. It’s turned out to be the best option for them, but every company is different. The most important thing is to have a plan, says John Ovrom, the president of transition advising company Exit Consulting Group. Ovrom also helped Isom and his partner devise their succession plan. “It doesn’t mean you have to execute the plan, but if your goal is to some day leave the company without it being reliant on you to be successful, then the longer you plan it, the better it is.” Few companies appear to be heeding that advice, however. According to a study from Deloitte, only about 10% of American companies say they have a management succession plan that is effective in transitioning young leaders into senior roles. With about 10,000 baby boomers retiring each day until 2027, that could spell disaster for the future of these companies and their retirement coffers. 10 » Partners in Progress » www.pinp.org
So, where does one even start the planning process? The place to start is to define “the win,” says Ovrom. Reasons for leaving typically fall into four categories, he says—emotional, financial, risk reduction, and health—and each reason coincides with a different exit strategy. “If risk tolerance is big, for instance, then you can’t sell to an inside buyer because they likely won’t pay you quickly,” Ovrom says. “So that means we have to take it to a third-party sale, which will allow you to get out faster.” All options have their pluses and minuses, though. A thirdparty sale might get an owner out quicker, but the value of the company might not be as high as anticipated, particularly if little thought has been given to who and how the owner’s shoes get filled. For Al Youna, president of YMI Group, a third-party sale wasn’t right for him. “A few years ago, I decided I didn’t want my retirement to be contingent on the sale of my company,” Youna says. “Instead, I worked with a financial planner to develop a 20-year plan. Once I reach that time, I could basically decide to walk away from the business, and I’d be able to live the same lifestyle.” If legacy and trust are big issues for an exiting owner, another option is to hand the reigns over to a family member. But that person has to be trained and ready to take on those leadership responsibilities, Ovrom says. “The best transition I’ve worked on is the one in which the son or daughter is in the business, started at the bottom, and moved up. This is particularly true
