Industry: Experiential Education & Travel
Function: Executive and Finance
Location: HQ Domestic, Operations Global
The founder-entrepreneur was a researcher-author who had built a multi-million dollar experiential education and travel business steadily over a period of three decades. He was sixty years old and evaluating options for the continuity of the business as he stepped aside, eventually “retiring” to a reduced role in the business while accessing the value of the business he’d built through a sale. The business had seen customer and revenue numbers mushroom successfully over the last few years.
Among the issues we evaluated and addressed were:
- The impact of the owner’s presence and involvement upon company sales and market presence.
- The ability to keep key staff (both customer-facing and administrative) who had been trained and developed internally, possessing decades of accumulated experience.
As is the case for many small to mid-sized private businesses, the founder’s continued involvement post-sale was critical to maintaining the value of the brand and the enterprise business value. In addition, the founder had been the primary developer of intellectual property (IP); the business needed to maintain its exclusive rights to this IP and access new IP during a planned and phased succession period.
In order for the deal to work, the company needed to buy out/ roll up a long-time business partner and related support business to create a whole company from the loose collection of separately owned small businesses and independent contractors. Each part was needed for this business to function as a unified enterprise-and to capture maximum economic value.
To support this work, we:
- Created a composite business pro-forma and forecast to explain in financial terms the consolidated business as a whole enterprise – for owner/ entrepreneur, valuation firm, and other key stakeholders.
- Evaluated the valuation and the applicability and benefits of an Employee Stock Ownership Plan- Trust (ESOP) sale; and
- Worked with the owner to optimize the valuation of the business and provide proper financial back-up.
- Screened, interviewed, hired and managed the various professionals to execute both the ESOP sale and the pre-ESOP buy-outs and consolidations on behalf of the owner.
The ESOP was successfully executed, with all issues addressed. This transaction succeeded despite the credit and market meltdowns of 2008 and recession of 2008-10. As a result of this project, the owner was able to convert remuneration expected to be received as personal income into long-term capital gains for significant tax savings.
The ESOP structure allowed three key issues to be addressed:
- The founder was able to sell 100% of the business, while remaining for an extended transition in a role he had chosen and designed in advance.
- By selling to the employees, the founder was able to lock-in key people essential for the ongoing success of the business, rewarding those choosing to stay long-term and contribute to business success.
- The tax-benefitted ownership status created by the ESOP allowed a significant portion of the purchase loan repayment to be made from funds that would have previously been paid by the business as tax on earnings.
Based on this work, the owner realized significant financial benefits, maintained a large degree of post-sale control-influence, created a more viable business going forward, and implemented a stable structure for business succession and continuity.