Entrepreneurs that are stretching their limits to achieve the next phase of growth and are therefore may consider selling the business. But in that case, a partial sale through a pre-exit can also be interesting. In a pre-exit, you sell part of your shares and make agreements in advance to transfer the company completely in stages over a set period, for example in 5 years. In the first stage you sell part of the company to an investor, then in the second stage you can contribute to the growth to the next level. Finally, in the third stage, you sell your stake completely.

The first stage: partial sale to an investor

During the first stage of a pre-exit, a large portion (usually a little more or less than half) of the company is sold to an investor. It is also possible to sell the entire company to a newly formed holding company, of which you as entrepreneur and the investor both buy the shares in some proportion. You can finance this out of the proceeds from the sale of your entire business to the holding company.

The second stage: realizing joint growth potential

In the next stage, growth plans must be made concrete. The approach to this is usually set out in a growth plan prior to the deal. Part of the growth plan may include attracting a co-director or manager who also acquires an equity interest in the company. This Management Buy In provides the company with additional competencies to enable it to achieve the next phase of growth. Because the impact of the new division of roles and control can be significant, it is very important that the investor is a good “fit” with you as an entrepreneur. Over a period of usually 5 years, growth is realized, value is created and the company is prepared for eventual sale.

The third stage: final exit

The final stage then involves finding the right strategic buyer, to sell the company that has been raised to a higher level, at a significantly higher price than the value in the first stage. When this succeeds, the pre-exit has been an attractive scenario for both you and the investor.

Benefits of a pre-exit

Thus, if you wish to remain associated with the company, a pre-exit can offer the following benefits:

• You secure part of your wealth at the beginning of this adventure.
• You are heavily involved in the next phase of the company’s growth.
• Ultimately, a pre-exit may generate a higher value.

The right advisor for a pre-exit

In a pre-exit, choosing the right advisor who is a good fit for you is critical. FBM Corporate Finance has assisted in many pre-exit, sale and purchase processes. Therefore we know the process well and have a broad network of investors at our disposal. The advisors of FBM Corporate Finance assist entrepreneurs in a personal manner.