Family-Owned Essential Services Business Exits via a Family Succession
THE SITUATION: Family owned business for 20+ years, with consistent year-over-year growth due to their exemplary reputation for high-quality, fast, honest, and friendly service, received an unsolicited offer from a strategic buyer.
With two sons working in the business, they were considering passing the business to the next generation but were unsure whether a family succession could meet their business, personal, and financial goals.
Key Owner Questions
What is the value of the business and how would a family succession be funded?
Can we financially afford to support a transfer to the next generation?
How do we structure an internal sale?
Is the next generation ready to take over the business?
How can we minimize taxes on the ownership transfer?
What is an appropriate timeline for us to handover the business?
OUR APPROACH
Create a Master Exit Plan® that answered the owners’ questions and addressed their business, financial, and personal goals, enabling them to select the best exit strategy for them and their sons:
Valuation: An in-depth quantitative and qualitative analyses was performed to calculate the business’s enterprise value. The valuation served as a basis to compare the financial impact of a potential third-party sale to an internal sale. It also provided a foundation to explore funding mechanisms for an internal transfer.
Optimization Plan: During the valuation, we identified organizational weaknesses and developed corresponding strategies and tactics to support future growth and the success of the identified exit strategy. We also evaluated the current leadership strengths and weaknesses to identify any gaps that would limit the viability of an internal transfer. We then created a process to ensure a smooth transition of ownership, leadership, and management responsibilities.
Personal Financial Plan: In collaboration with the owner’s wealth manager, a financial plan was created that included the net of tax proceeds from an internal sale. The resulting financial plan provided the owner with the necessary clarity to understand the impact of a family succession as opposed to a third-party sale.
Exit Strategy: Based on the valuation, personal financial plan, and with consideration of their business and personal goals, the owners evaluated the viability of a transfer to the next generation compared to a sale to a strategic third-party. The analyses resulted in the owners choosing a family succession and were assured this strategy would meet their goals.
Tax Mitigation and Estate Plan Review: In partnership with the client’s CPA and estate planning attorney, we explored the options of transferring shares via gifting, trusts, or selling. A strategy to ensure maximum tax mitigation on the business transfer was also identified and executed.
Post-Ownership Plan: A post-ownership plan was created which identified the owner’s personal goals and addressed the emotional aspect of stepping away from the business. In addition, appropriate governance structures were established for the business to promote family harmony post-transition.
Result
Legacy Partners created an actionable Master Exit Plan® that established a comprehensive family succession framework, transitioning the business from a founder-led model to a multi-generational structure. This process defined a clear timeline for the transfer of both leadership and ownership, underpinned by implemented tax mitigation strategies designed to preserve family wealth. To ensure long-term continuity, a formal Successor Preparation Plan was launched for the owners' sons, facilitating a phased shift in operational responsibilities. These results provided the owners with a structured path to retirement while securing the company’s legacy and financial stability for the next generation.
