Succession planning – is a partial exit an option?

9 May 2017

You can’t take it with you – make sure you enjoy at least some of it while you can.

You manage a business that is providing you with a certain lifestyle and is still taking a lot of your time.  You enjoy it and remain a major stakeholder, yet you know you should be looking at the options or would simply like to time to realise other ambitions.

Succession planning involves developing a managed process to create that opportunity and then implementing it to allow you to obtain real value from your business at the right time.  This may be through realising all of the value in a clean exit or through a sale of a stake.

A middle ground – realising a significant, but not a controlling stake – can often be effective as it may allow owner/managers to realise elements of value whilst retaining control and the aspects they enjoy.

So is it easy to put into effect?

In theory, yes…

Succession planning should start early with a clear understanding of the steps required and the likely timescales.

The parties that may be affected by the transaction include:

  • major customers and suppliers used to dealing with you;
  • providers of finance;
  • any other stakeholders;
  • your management team.

As part of succession planning you need to consider the effect that any changes will have on the business such as any additional burdens that will need to be met and the resources to meet them.

What will I need to achieve this?

Some of the first things to consider include:

  • are there internal people who you want to be your successors, and how to approach them;
  • are there any third party acquirers who are likely to be interested;
  • how much value can be obtained and the structure to any likely deal;
  • what you can expect afterwards.


There are often key people in your business that you rely on but who have little or no direct stake in the ownership.  They may already be directors or individuals you have identified as being crucial to the future.

The important part is to be able to approach, discuss and listen to the interest levels without committing yourself or the business. Also, it has to be done in a way that will still maintain all the enthusiasm and commitment of the people if it should not come to pass.

If there is no direct successor in the business then the options may include introducing an outside candidate perhaps through recruitment or a formal management buy-in.

Alternative options are trade, or in some sectors serial corporate acquirers, who are happy to look at investing in a staged acquisition process and see you gradually step away from the business in a managed environment.


The value that you can expect to receive may vary according to:

  • The intrinsic value of the business you have created and its prospects. Whilst the value that the business might achieve on the open market will have a bearing on the transaction, often in ‘succession’ situations the dynamics between the parties can be different and price may reflect this.
  • The ability of ‘successors’ to participate in the ownership. This is not just financial capacity but personal preference – just because you identify them as a candidate does not mean they will want to accept the challenge or will gain the confidence of financial backers.
  • If it is a corporate investor/acquirer their deal boundaries are often a limiting factor, at least initially.
  • Your own expectations – it’s important to carry out a realistic assessment of the ‘like’, ‘want’, and ‘need’ levels at the outset. This will help set expectations for later on in the process.
  • Any business specific issues such as surplus cash, pension deficits, existing debt or reliance on key customers.


The greater the flexibility shareholders have in terms of immediate cash requirement and the timing of any further payments can help to significantly improve the overall terms. This may also include consideration contingent on future trading.

And afterwards?

After the transaction you may still be a major stakeholder in the business. You may find it difficult  to carry on as you were before; as any succession planning that gives you an element of value usually gives controlling management the freedom to make changes to the way in which the business is run. However you should have received an amount of capital that will allow you to change aspects of your personal life or begin to step back.

Ultimate exit?

In any partial exit clearly you will retain an equity interest. You will therefore have a more than healthy interest in the new team’s business plan, performance and horizons. This will need to meet your overall plan for a complete exit and hopefully a second significant realisation of value.

If you have a question about succession planning or wish to discuss if a partial exit could be right for you, please contact me or your local UHY corporate finance expert.