Yet another downside to an internal transfer is the loss of potential for extraordinary gain on the transfer. As a general rule, external buyers for businesses include Strategic (or industry) buyers and Financial (such as Private Equity Groups) buyers.

A Strategic Buyer of a business stands to offer the selling business owner the highest total Value in buying the business because that buyer can apply synergies to the valuation of the deal. In other words, a buyer who is already in the same business as the seller, can eliminate duplicate expenses and acquire new customers for their existing products. These synergies help raise the Value of the transaction to the Industry buyer, and a good M&A intermediary will argue for the sharing of those synergies with the selling business owner. This synergistic value is likely not available with an internal transfer.

So to summarize my original point, a business owner who wants to Exit their business should be aware of the various methods by which an Exit can be directed. Thereafter, consideration should be given to that business owners motives. In other words, what is most important to that Exiting business owner and how can it best be accomplished?

An Exit Strategy is defined as The written goals for the succession of a businesses ownership and control, derived from a well thought out and properly timed plan that considers all factors, all interested parties, and the personal goals of the owners in a manner and time period that is accommodative to the business, its shareholders, and potential buyers. Accordingly, knowing the pros and cons of internal and external transfers is a critical step in establishing an Exit Strategy.

Exit Strategies are hard to design and even harder to properly execute. I am pleased that you are pursuing a pro-active interest in Exit Strategies because a pro-active approach to an Exit Strategy is the only approach to a successful Exit Strategy.

2007 John M. Leonetti