Nick Pheasey
Private Client Advisory Partner
KPMG

Preparing for post-exit life. Lessons from leaders

Dan Cobley, Managing Partner, Fintech at the UK's leading venture builder Blenheim Chalcot, and Gav Winter, founder of the UK's leading software test consultancy firm Ten10 Group, on what to expect after an exit.

"The amount of money private business owners realise from an exit depends not merely on factors such as headline price but also on decisions made beforehand regarding structure and tax relief."

Nick Pheasey, Private Client Advisory Partner, KPMG

Perhaps your post-deal obligations mean you will remain actively involved for quite some time. There could be an earn-out provision tied to future performance or an arrangement to help the buyer integrate the acquisition into their existing business. Maybe you have even retained an equity stake. To ensure your post-deal success, be clear on your objectives and what’s important to you from the get-go.

“I’ve had situations where multigenerational family businesses have been sold and effectively those shareholders have exited completely and walked away – that’s one end of the spectrum,” says Nick Pheasey, Private Client Advisory Partner at KPMG. “The other end is a typical private equity transaction where perhaps the shareholders are rolling over a significant proportion of their equity value. In those cases, they will be very committed to the future success of the business because their future return is going to depend on it. They are very aligned then with the new owner or backer.”

Of course, the amount of money private business owners realise from an exit depends not merely on factors such as headline price but also on decisions made beforehand regarding structure and tax relief. That means it’s wise to be flexible and keep your options open as far as possible, given that market conditions and circumstances can change.

Be clear on your goals

If your aim is for family members to benefit from the proceeds of a sale, equity can be transferred to children or grandchildren, or trusts established, ahead of the exit. But such moves are irrevocable, and not everyone has a clear idea of where they want their wealth to go at such an early stage. There is also the matter of moving goal posts to consider: if the exit generates double the money originally expected, you may end up giving away more money than intended.

After cashing out, chances are the phone will ring off the hook with investment propositions, including offers to act as a business angel. “I always counsel clients that they need to take their time and think very carefully before investing significant sums in another business,” says Nick. “They may not understand the sector as well, the business might not be as well positioned or set up to exploit market opportunities. Sometimes those next investments just aren’t as successful.”

“One client who recently sold his business woke up worried every morning because there was no longer a salary coming in."

Nick Pheasey, Private Client Advisory Partner, KPMG

Other clients are more cautious but find that the transition from active business owner to largely passive investor can be stressful.

“One, who recently sold his business, woke up worried every morning because there was no longer a salary coming in,” says Nick. “KPMG offered advice on restructuring his affairs so that he received a monthly amount, allowing him to live well without frittering away too much hard-earned capital.”

For a lot of business owners, the big priority is managing and protecting the wealth they have accrued, for the benefit of future generations. “If you had a very valuable business, you probably didn’t have to worry about inheritance tax because of the tax reliefs,” says Nick. “But as soon as you sell a business, you have a problem if something were to happen to you the following day.

“You need to start thinking about how you pass on that wealth and what you want to do with it. This conjures up different answers. For some, they may feel they want to look at philanthropy. I have a number of clients who set up charitable trusts and foundations.”

In cases of considerable wealth, clients are often concerned about how the next generation will cope. “There can be an element of wanting to motivate the next generation so that they have a purpose,” says Nick.

Some clients will set up companies to manage investments. Essentially, their business moves from manufacturing or delivering services to one of investing the family wealth. Others are more concerned with enjoying retirement in sunny climes.

But whatever your personal objectives, it’s important to make informed choices. Selling a business for a substantial amount of money is generally a once-in-a-lifetime event. “There may only be one time in your life that you take advice from a specialist firm that does this type of thing every day,” says Nick, “but this is the time to do it.”

Exit takeaways

  • Take specialist advice on tax and major investment decisions.
  • Substantial wealth will affect the lives of you and your family – give careful consideration to what you want to achieve and plan for that.
  • Maintain a healthy scepticism about investment opportunities – don’t allow yourself to be pressured into making overly hasty moves.

For further information on the challenges and opportunities arising from the post-sale phase of ownership, download our Road to Exit guide or get in touch with us to discuss your situation and future goals.

Join the conversation: #ItsYourLifesWorkValueIt

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