shoreliz1107201301-cx*750This post was authored by Bank of America Merrill Lynch Market Executive and ACG board member Liz Shore. It was previously published in the Washington Business Journal.

One of the most important phases in a company’s lifecycle comes after the hard work of building the business is done — ownership            transition.

For an owner, the stakes are high—and there’s only one chance to get it right.

  • Selling to a strategic buyer. A competitor or company in an adjacent industry buys the business. This type of exit often brings top dollar, as the buyer pays a premium for the synergies it expects to gain by adding the business to its operations. But this option involves giving up control, and it can create uncertainty for employees.
  • Partnering with a private equity/financial sponsor. This option can be a way to keep the management team intact once the company is sold, and the original owner may stay on board with a minority stake. Private equity firms are becoming increasingly interested in middle-market companies, but it’s important not to forget that in this type of deal, ultimate control of the business will rest with the new majority owner.
  • Going public. A company makes its shares available for public purchase. An initial public offering (IPO) has the potential to deliver more liquidity than some other strategies but comes at a cost as public financial reporting requirements are expensive and involved, and being a public company has disclosure requirements which can impact confidentiality.


Despite the wide variety of possible situations and options for approaching them, a couple of rules apply in every case: First, plan ahead. And second, find advisers you trust.

It’s important to remember that many strategies require a long lead time. Options such as working with a private equity sponsor typically require obtaining audited financial statements, so they can only be carried out with proper planning. Also, acting well in advance to deepen your management team can benefit your company’s options and valuation when the time comes for an exit.

Additionally, an ownership transition may involve a significant liquidity event for the owner. A skilled adviser can help with financial planning and the tax implications that arise from the cash windfall and tax considerations.

“I can’t emphasize enough the importance of engaging the right adviser to help guide you through the process,” says Shore. “It’s not just an accounting or legal discussion. The implications are so much more.”

“Understanding the strategic alternatives through the lens of your personal goals and objectives and the corresponding trade-offs should be a non-negotiable.”

Unfortunately, succession planning is an often-overlooked strategic objective of a company, says Kevin Trieber, senior vice president at Bank of America Merrill Lynch.

“I’ve seen many companies put off succession planning because it is an emotional discussion; many owners are not prepared to consider life after their company,” says Trieber, who consults middle-market companies on succession strategies for BofAML. “It takes years to build a successful company. The average business owner spends 80 hours or more working on a strategic plan and six hours or less working on a transition plan.”

Ownership transition is an issue that many businesses will address in the years ahead. According to the U.S. Census Bureau, nearly two-thirds of the 4 million U.S. companies are owned by baby boomers and many are looking to retire or scale back their work.

“Back in 2008 when the financial crisis hit, we had quite a few clients who were considering selling,” says Liz Shore, Mid-Atlantic Region Commercial Banking market executive at BofAML. “When the market dropped and valuations followed, they found they had to retrench and work longer than planned.”

The unplanned delay in transitions has led to today’s unprecedented level of mergers-and-acquisitions activity for middle-market companies, she says.


When the time comes for a transition and the associated liquidity event, the right approach depends on the specifics of the business and the goals and objectives of the owner. While there are many variables, considerations often center on accessing liquidity, maintaining control, and/or preserving a legacy.

Common transition routes include:

  • Leveraging capital. An outside financing source provides debt capital, allowing the owner to take cash out of the business and diversify the risk of their investment into other asset classes. This option can provide fast access to liquidity while allowing shareholders the ability to maintain complete economic control of the business. But lending criteria can be strict, and it’s an arrangement that comes with debt service requirements.
  • Setting up an employee stock ownership plan (ESOP). Employees buy some or all of the company’s stock from the owner(s) through the creation of a trust. This can be a top option for preserving your legacy and rewarding your employees while achieving liquidity on a tax- advantaged basis. It is, however, a longer-term transition and brings considerations such as ongoing obligations.