What is a pre-exit in a business sale and why do entrepreneurs choose this?
A sell company It is often seen as the moment when an entrepreneur completely steps away from their company. In practice, however, more and more entrepreneurs are opting for an intermediate step: the pre-exit. In this case, you sell a part of your company to an investor while remaining involved with the business yourself.
For entrepreneurs, this can be an attractive strategy. You cash in on a portion of the value you have built up over the years, while simultaneously continuing to benefit from the future growth of your company. In this blog, you will read exactly what a pre-exit entails, when it might be beneficial, and which steps are important when considering a partial sale of your business.
How does a pre-exit work in practice?
In a pre-exit, the entrepreneur sells a portion of his shares to a investor, such as a private equity firm or investment company. At the same time, the entrepreneur often remains a shareholder and actively involved in the company.
In practice, a pre-exit often proceeds as follows:
1. The entrepreneur sells a portion of the shares
The entrepreneur sells a minority or majority stake to an investor. In practice, this often involves a stake between approximately 30% and 80% of the shares.
2. Part of the enterprise value is realized
Through the sale, the entrepreneur receives a portion of the company's value in cash. This creates financial security, while the entrepreneur remains involved with the business.
3. The entrepreneur often reinvests part of the proceeds.
In many cases, the entrepreneur reinvests a portion of the sales proceeds in the new shareholder structure. As a result, he or she continues to share in the future value growth of the company.
4. The entrepreneur remains involved with the company
The entrepreneur often remains active as a director or shareholder for several years. Together with the investor, work is done on the further growth and professionalization of the company.
Many investors work with an investment horizon of approximately five to seven years. If the company grows successfully during that period, it can be sold again later. With this second sale, the entrepreneur benefits once again from the increase in the company's value.
Why do entrepreneurs opt for a pre-exit?
A pre-exit is becoming increasingly popular because it offers a balance between financial security and continued growth of the company.
The main reasons are:
1. Securing a portion of the assets
For many entrepreneurs, a large part of their wealth is tied up in the business. With a pre-exit, an entrepreneur can realize a portion of that value without immediately stopping completely.
2. Accelerate growth with a strategic partner
Investors often bring capital, experience, and a network. This allows a company to grow faster, for example through international expansion, digitalization, or acquisitions.
3. Spreading risk
By selling a portion of the shares, the entrepreneur reduces his personal financial risk. At the same time, he continues to benefit from future growth.
4. Creating a second sales opportunity
When the company is sold again after a few years, the entrepreneur can benefit from the increase in value once more. This second moment of sale is also known as a 'second exit'.
When is a pre-exit interesting?
A pre-exit is particularly interesting for entrepreneurs who:
- They want to sell their company eventually, but do not want to stop completely yet.
- Expect their company to continue growing strongly.
- Want to attract additional capital or expertise.
- Want to safeguard part of their assets.
This often occurs in companies entering a next growth phase, for example at:
- Internationalization.
- Scaling up.
- Digitalization.
- Buy and build strategies where growth is realized through acquisitions.
In such situations, an investor can help realize the next growth phase more quickly. Not only because of the capital, but also thanks to the knowledge, experience, and network that an investor brings with them.
What is the role of an independent advisor in a pre-exit?
An independent advisor plays an important role in a pre-exit, as they guide the process, select the right investors, and safeguard your interests during negotiations.
Strategic, financial, and personal interests converge in the partial sale of a business. Objective advice helps to navigate the process in a structured manner and make the right choices.
An advisor can provide support with, among other things:
Determine strategy and timing
: An independent advisor takes a detached view of your business and helps assess whether a pre-exit is the right step at this time. This involves considering the market, your company's growth potential, and your personal goals as an entrepreneur.
Finding the right investor
: Advisors often have an extensive network of investment firms, private equity firms, and strategic buyers. This allows your company to be specifically introduced to parties that match your sector and growth plans.
Negotiations and structure of the transaction
: In a pre-exit, negotiations take place not only regarding the price, but also regarding conditions such as control, reinvestment, future exits, and potential earn-outs.
Structure and direction in the process
: A pre-exit consists of multiple phases, such as preparation, valuation, investor selection, negotiations and due diligence. An advisor provides structure and coordinates collaboration with lawyers, accountants, and financiers.
Realizing maximum value
: Involving multiple investors in the process can create competition. This increases the likelihood of a better valuation and more favorable terms for the entrepreneur.
Why choose Match Plan?
Match Plan guides entrepreneurs from initial orientation to the final transfer. As independent advisors, we ensure a structured process that prioritizes your interests. What we do for you:
- Full guidance from start to finish, from strategic exploration to handover.
- More than 30 years of experience in business transfers.
- Strategic advice on valuation, negotiation strategy, and reinvestment.
- An independent and transparent process in which your goals take center stage.
- Coordination of the entire process so that you maintain an overview and can continue to focus on your business.
Would you like to discover what a pre-exit can mean for your company? Feel free to contact us for a no-obligation consultation.
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