Download Chapter Fourteen Power Point Slides

Entrepreneurship
14
Exit Strategies for Entrepreneurs:
When—and How—To Harvest the
Rewards
“All things change…There is nothing
in the whole world which is
permanent. Everything flows
onward…the ages themselves glide
by in constant movement.”
--Ovid, 10 B.C.
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Exit Strategies
• Sell or transfer ownership to
insiders
• Sell or transfer ownership to
outsiders
• Take the company public through an
IPO
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Sale or Transfer to Insiders
• Succession
• Leveraged buyout
• Employee stock
ownership plan
14-4
All In the Family
• Share power
• Form a limited partnership
• Set up a trust
14-5
Leveraged Buyouts
• Managers borrow money to pay the
owner an agreed-upon price.
• The new owners pledge their stock
as collateral, or…
• Lenders accept an equity position in
the company to cover part or all of
the funds.
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Employee Stock Ownership
• Ordinary ESOP
• Leveraged plan
• Transfer ownership
plan
14-7
Selling to Outsiders
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Sell at the right stage
Sell when the business cycle is strong
Compensate for loss of talent
Identify and protect intellectual property
Adopt transparent and conservative
accounting policies
• Resolve open questions that make it
difficult to estimate value
14-8
Factors in Terms of the Sale
• Valuation of the
company
• Negotiation
process
14-9
What’s It Worth?
• Balance sheet
methods
• Earnings
methods
• Market method
14-10
Balance Sheet Methods
• Balance sheet method
Net worth = Assets – Liabilities
• Adjusted balance sheet method
Estimates market value of assets
14-11
Earnings Methods
• Excess earnings method
• Capitalized earnings method
• Discounted future earnings method
14-12
Advantages of IPOs
• Cash
• Aura of respectability
• Market provides continuing
valuation of worth
• Ability to use stock options for
employees
• Ability to use stock to acquire other
companies
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Disadvantages of IPOs
• A tremendously
expensive process
• Lock-up agreements
• Subject to careful
scrutiny
14-14
Bargaining Tactics
• Beginning with an extreme initial
offer
• Using the “big lie” technique
• Convincing the other side you have
an “out”
14-15
Unethical Negotiation Tactics
• False promises
• Misrepresentation
• Inappropriate information gathering
14-16
Reaching Integrative
Agreements
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Logrolling
Nonspecific compensation
Broadening the pie
Cost-cutting
Bridging
14-17
Changes Over Time
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Physical appearance and energy
Cognition and memory
Intelligence
Creativity
14-18
Eras of Our Lives
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Age 30 transition
Midlife transition
Late-adult transition
Consider your stage in life as you
consider your exit strategy
14-19