Venturi Viewpoints discusses the intersection of life, wealth, and wisdom. We hope you enjoy this installment featuring Gary Valdez, who shares his insights about planning the successful sale of a business.
What was your path to becoming an exit strategist? I came up through Commercial Banking and completed formal credit training, which provided opportunities for leadership positions. During that time, I came to know several company owners who were looking for guidance in transitioning their businesses to the next stage. I also had the opportunity to work with a founder’s group to establish a new bank in our community, Cattlemen’s State Bank, that we ultimately sold to a bank acquired by Wells Fargo. That first-hand experience spurred my desire to start my own investment banking firm. I knew I wanted to be more involved in the strategy side of the business, so in 1999, I founded Focus Strategies Investment Banking in Austin.
When is the best time for a business owner to begin planning for an exit? If a business owner is contemplating a sale in the next five years, we like to meet with him or her at the outset of that window, so that we can support the process more effectively. We like to assess where the business is relative to the owner’s goals, and then help steer steady progress toward those goals.
The actual sale of a company typically takes six months to a year to transact, depending on the situation. However, there are a lot of “boxes to check” before an owner goes to the market. For example, we very often encourage owners to put a management team in place so that the owner is no longer essential to the day-to-day functioning of the business. That way, an owner can be the “head coach,” sitting in the press box looking down on the game, rather than playing in the game. Transitioning responsibilities to a management team can take 2 to 3 years. Ultimately, though, that transition makes a company more valuable, assuming that the company has good profitability and is in a promising industry.
What are the key factors business owners should consider when planning to sell a business? It is important for owners to delineate clear goals, both for themselves and for their employees. We then work closely with owners to gauge where they are relative to their goals.
One of the first things we ask owners is to quantify their lifestyle spending and determine what they need from a sale to support their future plans—whether that is retirement or another venture. A detailed financial plan can be very illuminating, in that it removes the guesswork from people’s projections. We don’t want business owners to assume that a sale will be sufficient for their needs. We want the projected sale to dovetail with their spending requirements, without surprises.
Do most owners go on to start another business? In most cases, business owners who have sold a business do not want to begin a start-up. They prefer to acquire a business they can improve. Or, they may want to help their adult children spearhead their own ventures.
Entrepreneurs in today’s environment can draw on a wider range of funding resources and structures than they did 20 years ago. A private equity firm, for example, may partner with them. Fifteen years ago, there was approximately $400 billion of institutional capital committed to private equity. Today, that number is closer to $1.5 trillion; the amount of money available for investment has increased trifold.
What can owners do to help maximize a potential sale? Competitive intelligence is really important. Ideally, business owners can delineate why their business is attractive to potential buyers and how they and their management team have positioned the company to capitalize on opportunities and compete more effectively. If, on the other hand, they feel the business is underperforming, they can use the next two-to-three years to propel the company toward better returns and performance.
When contemplating a sale, are there factors that business owners should consider beyond price? Most owners recognize that the reputation and safety record of their company are essential components of their value proposition. Mindful of this fact, they safeguard and enhance those components of their culture.
Owners often want to ensure that their management team and employees are taken care of, and that the company culture will continue to embody the values they themselves prized. However, a potential buyer may not prioritize the same aspects of a company’s culture. To smooth that transition, we often make inquiries about potential buyers, helping to determine whether they would be a good fit for a business, culturally as well as financially.
Today’s environment also can provide flexibility relative to the structure of a sale. In decades past, a sale would typically be 100% of ownership. Now, however, some owners may have the ability to sell only 25% to 90% of their company and stay involved for a period of time, say 5 years. Over that time, the owner can groom a successor, prepare for retirement, and position the company for a second sale. That tiered approach also allows the management team to participate in the potential gains of a second sale.
Is there a “dream team” for an exit? Some companies have independent boards that must consent to a sale before it can proceed. That oversight can be helpful in preparing a business to achieve their strategic plan for sale of the company. Other companies may enlist business coaches or advisors on a periodic basis. They can also be very helpful as guides and confidantes.
The natural “inner circle” includes a tax accountant, financial accountant, corporate lawyer, wealth management advisor, and insurance specialist. Audited financials are extremely valuable, so the tax and financial accountants are key. In addition, a corporate lawyer with strong transaction experience is integral to the process. A wealth management advisor can provide that necessary financial planning that I mentioned earlier. And, depending on the nature of the business, an insurance advisor can be additive, particularly for manufacturing industries that involve heavy equipment.
What do owners tend to overlook in planning their exit? It is important for an owner to have a candid conversation with his or her management team about the owner’s goals for the transaction and to listen to the management team’s own goals. If an owner forgets to ask a CEO or CFO about his or her goals, then down the line, the whole sales process can come to a halt. You want to ensure that the process works for the management team, as well as for the owner.
Do you have any words of wisdom you share with owners? Every situation is different. However, many times, a business owner will grapple with a significant decision prior to a sale, wondering about its impact on the transaction. In those instances, we advise the business owner to proceed as if he or she will be running the company for the next ten years. By being consistent in that mindset, a business owner has a better chance of doing what is right for the business, rather than accommodating the perceived wishes of potential owners whom they do not yet know.
How can business owners soften the transition to the “new normal” once they have sold a company? Founders can sometimes experience “sellers’ remorse,” particularly when a company attains unexpected success after a sale. We try to remind those clients that fate can be fickle, and things could have also broken in a different direction.
Founders can also feel that they are less important after a sale. However, we point out that an owner’s overarching goal was to develop a well-run company that can thrive going forward. We suggest that founders schedule out their first 90-days after a sale, so that they become engaged with new interests and passions. These channels often open their eyes to the many possibilities that await them, whether that’s traveling, pursuing a new hobby, spending more time with family, volunteering, or beginning a new business venture.
Venturi Private Wealth
Venturi’s core mission is to help organize, plan, and manage all aspects of wealth for families and entrepreneurs with substantial assets so they can focus on their personal and professional priorities. We manage more than $1.25 billion in assets, a significant portion in-house, often eliminating additional layers of management fees. Founded in Austin, Texas, we incorporate the city’s entrepreneurial energy into everything we do.
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