CEPA - EXIT OPTIONS ANALYSIS
CORRECT 100%
Based on the 2013 EPI State of Owner Readiness Survey, how many business owners
were not familiar with all their transition options? - ANSWERNearly 2/3rds
What is a pro for an intergenerational transfer? - ANSWERa) Business legacy
preservation b) Planned c) Lower cost
Which of the following is not an inside exit option? - ANSWERRecapitalization
What are the two general categories for private ownership exit options? -
ANSWERInside and Outside
Management Buyout MBO - ANSWEROwner sells all or part of the business to the
company's management team. Management uses the assets of the business to finance
a significant portion of the purchase price
MBO Pros - ANSWER1. Continuity
2. Highly motivated buyers (pent-up desire)
3. Preserves key human capital / knowledge
4. Planned
5. Can be combined with private equity to access additional capital and resources for
growth
MBO Cons - ANSWER1. Management 'sand-bagging' 2. Distraction 3. Threat of flight
(coercion of owner) 4. Illiquid buyers 5. Lower price and unattractive deal terms for
seller 6. Heavy seller financing introduces risk 7. Managers are not always good
entrepreneurs
Sale to existing partners - ANSWERSuccess is closely linked to the existence and
quality of a buy-sell agreement. Not available to singleowner businesses.
Pros of existing partner sale - ANSWER1. Less disruptive 2. Planned 3. Well-informed
buyers 4. Controlled process (if buy-sell agreement in place and funded) 5. Lower cost
Cons of existing partner sale - ANSWER1. Lower sales price 2. Potential discord 3.
Competency gaps? 4. Buy/Sell may restrict selling options 5. Realization of proceeds
from sale is often slower (and less)
Sell to your employees ESOP - ANSWERCompany uses borrowed funds to acquire
shares from the owner and contributes the shares to a trust on behalf of the employees.
CORRECT 100%
Based on the 2013 EPI State of Owner Readiness Survey, how many business owners
were not familiar with all their transition options? - ANSWERNearly 2/3rds
What is a pro for an intergenerational transfer? - ANSWERa) Business legacy
preservation b) Planned c) Lower cost
Which of the following is not an inside exit option? - ANSWERRecapitalization
What are the two general categories for private ownership exit options? -
ANSWERInside and Outside
Management Buyout MBO - ANSWEROwner sells all or part of the business to the
company's management team. Management uses the assets of the business to finance
a significant portion of the purchase price
MBO Pros - ANSWER1. Continuity
2. Highly motivated buyers (pent-up desire)
3. Preserves key human capital / knowledge
4. Planned
5. Can be combined with private equity to access additional capital and resources for
growth
MBO Cons - ANSWER1. Management 'sand-bagging' 2. Distraction 3. Threat of flight
(coercion of owner) 4. Illiquid buyers 5. Lower price and unattractive deal terms for
seller 6. Heavy seller financing introduces risk 7. Managers are not always good
entrepreneurs
Sale to existing partners - ANSWERSuccess is closely linked to the existence and
quality of a buy-sell agreement. Not available to singleowner businesses.
Pros of existing partner sale - ANSWER1. Less disruptive 2. Planned 3. Well-informed
buyers 4. Controlled process (if buy-sell agreement in place and funded) 5. Lower cost
Cons of existing partner sale - ANSWER1. Lower sales price 2. Potential discord 3.
Competency gaps? 4. Buy/Sell may restrict selling options 5. Realization of proceeds
from sale is often slower (and less)
Sell to your employees ESOP - ANSWERCompany uses borrowed funds to acquire
shares from the owner and contributes the shares to a trust on behalf of the employees.
