Equicapita - Succession Planning and Business Value

7/27/2019 Equicapita - Succession Planning and Business Value

1/3

How Does A Succession Plan Enhance Value


A succession plan is one o the oundational elements o a company with a long term vision, even Fortune

500 companies must have succession plans in place to ensure their longevity. O course a succession plan

or a private company will likely dier rom that o a Fortune 500 company but many o the same elements

will be present in both.

Distribution of ownership or exit strategy

This will relate to whether or not the succession plan is one where ownership will remain in the amily or with

the current shareholder group and their amily, or whether the succession will include a sale to a third party

be it a strategic purchaser, a fnancial purchaser or the management team.

Who will take over leading the business as CEO or president?

Whether you plan to keep the ownership internal or move it external, the CEO cannot remain at the helm

orever and a new one must be chosen, searched or or groomed. Someone has to lead the business in

order or it maintain and grow the value, and or it to execute on its short and long term goals and objectives.

Business maximization strategy

Only the best run and most proftable companies will ever actually sell. In order to ensure your company sells

the implementation o business maximization strategies will contribute to the business selling and or highest

price. Business maximization strategies include:

1. Business growth plans including expansion o market share, as well as increased diversifcation o

customer mix

2. Sale o non-core assets or underperorming product lines or divisions

3. Implementation o a ormal continuous improvement program

n Reduction o operating and input costsn Reduction o discretionary expenses

4. Management training programs to increase the competence, responsibility and eectiveness o the

management team (once the current owner exist the business)

Role of key employees

nKey employees are crucial to the health and longevity o any business and it is important to includethem as part o the overall succession strategy. Furthermore by including the employees as part o the

process not only will you probably get better buy-in but your will likely remove the cancer o rumors

and speculation o what will happen with the business and the uncertainty related to their jobs.nAs a way o mitigating risk to the business o losing a key employee through the speculation and

uncertainty o a transaction, it is best to keep key people in the loop on what is going on and what

the overall plan.

nA urther way to protect the business is obtain key man lie insurance, on key employees, in case o anuntimely death.

Business valuation

How do you know what a good price is or your business until you get an objective and defnitive perspective

on what the value o the business. This is an important and necessary frst step o any succession plan.


2/3


This coupled with the business maximization strategy, will determine the baseline value or the business and

programs to put in place to increase the overall value o the business.

The mechanics of the sale

This includes the details o the three most common scenarios:

1. Outright sale

n How much would you be willing to provide as fnancing (vendor note, second mortgage on realestate) and would you be willing to take consideration other than cash as a way to increase the

overall proceeds (earnout, shares in the purchase company)

n What is being sold the shares, the operating assets, everything including company owned realestate.

2. Management buyout

n Same as above, including do you want to sell 100% o the company or do you want to retain acomponent o the business to acilitate the purchase.

3. Transition to amily members

n How will you ensure you get some cash out o your business?n What type o fnancial assistance you will provide to acilitate the transaction and provide comort

to the fnancial institutions that the business will succeed once you have exited the business.

n TimelineA clear plan should be in place that includes a detailed timeline so that that the people

involved know what to expect and what will be involved in the program. To the extent

possible uzzy generalities should be avoided since there will be nothing to stick to when the

process begins.

n Contingency considerations and Progress monitoringTo paraphrase Robert Burns - The best laid plans oten go awry it is important to:

1. Contingency planning i the key shareholder or owner becomes suddenly sick

or dies, the business may be in jeopardy due to the delay in transitioning key

relationships, responsibilities or other roles. One o the best ways to deal with these

contingencies is key man insurance that would und the business in case o such aloss. The second way is to not delay in grooming your successor.

2. Monitor the progress o plan along the way to see i things are moving along as

planned. I things do get o track, know how to get them back on track


3/3


ABOUT EQUICAPITA

Equicapita is a private equity und that acquires established, private, small and medium sizedenterprises (SMEs) located primarily in Western Canada. Equicapitas investment drivers are toacquire operating companies at attractive valuations, with a history o generating sustainable cashow and proven management teams. Equicapita believes that there is:

- a generational opportunity to acquire baby boomer SMEs; and- a unding gap in the $2 to $20 million enterprise value range.

The retirement o baby boomer business owners has been described as triggering one o thebiggest transers o corporate assets on record in Canada. This creates an environment with anabundance o opportunities to acquire SMEs with long-term operating histories, at attractive cashow multiples. Equicapita provides investors with access to this alternative asset class via anefcient RRSP eligible structure.

DISCLAIMER

The inormation, opinions, estimates, projections and other materials contained herein are provided as o thedate hereo and are subject to change without notice. Some o the inormation, opinions, estimates, projectionsand other materials contained herein have been obtained rom numerous sources and Equicapita and itsafliates make every eort to ensure that the contents hereo have been compiled or derived rom sourcesbelieved to be reliable and to contain inormation and opinions which are accurate and complete. However,neither Equicapita nor its afliates have independently verifed or make any representation or warranty, expressor implied, in respect thereo, take no responsibility or any errors and omissions which maybe contained hereinor accept any liability whatsoever or any loss arising rom any use o or reliance on the inormation, opinions,estimates, projections and other materials contained herein whether relied upon by the recipient or user orany other third party (including, without limitation, any customer o the recipient or user). Inormation may be

available to Equicapita and/or its afliates that is not reected herein. The inormation, opinions, estimates,projections and other materials contained herein are not to be construed as an oer to sell, a solicitation oror an oer to buy, any products or services reerenced herein (including, without limitation, any commodities,securities or other fnancial instruments), nor shall such inormation, opinions, estimates, projections and othermaterials be considered as investment advice or as a recommendation to enter into any transaction. Additional

inormation is available by contacting Equicapita or its relevant afliate directly.

Documents

Equicapita - Succession Planning and Business Value