Owner Liquidity Options | Owner Exit Strategy

Owner Liquidity: What are the options available to me?

There are multiple options for owners to consider when investigating owner liquidity strategies or exit strategies for a business.  Planning for the owner liquidity event, desirably 5 years of more in advance, affords an owner the ability to achieve the maximum value for their company.

Lantern Capital Advisors helps entrepreneurs and businesses prepare for and execute various owner liquidity strategies according to our clients needs or desires.  Because of our consulting model approach, we can investigate multiple concurrent strategies for our clients in order to achieve the best liquidity outcome for the entrepreneur.  Our fees are not determined by the amount raised, or the value of the company.  We work on behalf our our clients in order to maximize the liquidity strategy.

IPO (Initial Public Offering)

Initial Public Offerings are the  ultimate liquidity event for an entrepreneur.  Typically initial public offerings generate significant wealth for the owners and key management of the company as they sell at a much higher valuation than they would as a private company, and depending on the percentage of the company sold to the public, owners can often maintain control over the business.  In addition to the increased liquidity for current equity holders, once a company has executed an Initial Public Offering and is listed on the stock exchange, it has the ability to issue more shares (generating more capital) without incurring any debt, thus giving the company a cheaper access to capital and an easier engine to acquire other companies.  Going public also gives a company greater prestige, and makes the ability to attract talent easier.  Some of the disadvantages of going public are the cost of reporting and compliance, and required disclosures of key business and financial information of the company.  With less than 7,000 publicly traded companies listed on the two primary stock exchanges in the United States (NASDAQ and NYSE), less than 1% of companies will ever become public.  Learn more about IPO (Initial Public Offerings) and Lantern Capital Advisors

A Sale To A Third Party (Selling Your Company To A Strategic or Financial Buyer)

At any one time, approximately 20% of businesses are for sale.   Out of that number, only 25% of those businesses sell.  In clearer terms, only 5% of businesses are likely to be sold to a third party.  Percentages of success increase when revenues exceed $10 million dollars a year.  Often times the valuation is higher for these businesses because the company is purchased by a strategic buyer who realizes the “value” of the business, or the company is in a growth market.  However, when an owner sells their company to a third party, typically children or employees aren’t protected, company culture changes, and control over decisions for the company are eliminated.  Learn more about Selling Your Company To A Third Party (strategic or financial buyer) and Lantern Capital Advisors 

MBO (Management Buyout) or an ESOP (Employee Stock Ownership Plan)

Selling your company to the existing management team or employees.  By transitioning your company from a lifestyle company to one owned and operated by the management, the owner provides liquidity via a successfully executed management buyout or ESOP.  Management Buyouts and ESOPs typically don’t achieve the same lucrative valuation as selling to a strategic buyer in a hot market, but the benefits of a successful management buyout or ESOP can be an attractive exit strategy for an entrepreneur that values his business and knows that there is still some more work to be done.  Sometimes the owner provides the financing for the management buyout transaction or ESOP, but in other cases, the company can be purchased using debt instruments or an equity firm and the owner obtains liquidity instantly.  Learn more about Management Buyouts (MBO), Leveraged Buyouts (LBO) or buying out a business partner or owner with Lantern Capital Advisors.  

Successfully Build and Maintain a Lifestyle Company

You dream and aspire to become the entrepreneur with the plane, the vacation houses, your children and siblings employed, and eventually leave the business to them.  Everyone outside of the family are employees, and will come and go as the seasons pass and the years go by.  Owner liquidity is created by taking capital out of the business along the way.   For some entrepreneurs and service businesses, this business model makes sense, professional investors are rarely involved with lifestyle businesses because without the founders skills, and involvement these businesses are unlikely to grow.  Financing is provided that supports monthly cash flow for the business, but unless the owner keeps some of the capital in the business or diversifies the dependency on their involvement, financing for acquisitions, or realizing a maximum value from a sale to a third party buyer is unlikely.  In addition,  in all likelihood, the valuation that the owner believes someone would pay for their business is unrealistic (hence the 75% of businesses that are for sale that ultimately don’t close or sell).   Learn about Corporate Financial Planning and Lantern Capital Advisors or Exiting Your Business in a Few Years


Selling the assets of your company and closing the doors.  Companies liquidate for many reasons, the company did not obtain and attract the proper management team, the company lost market share and the ability to maintain the costs of doing business, the company lost their ability to maintain financing, and lacked working capital/cash flow.  Key employees have typically left, and there is no one left to steer the ship.  But the number one reason why a company goes into liquidation is because the company couldn’t find a viable buyer, and the owner needed to sell.  Learn about Corporate Financial Planning and Lantern Capital Advisors or Exiting Your Business in a Few Years   

Learn More About Buying Out A Partner Or Business Owner

Read Our Corporate Finance Blog Post:  Owner Exit Strategies

Owner Liquidity: Have You Ever Asked What If?

Are you considering an owner liquidity event?  Do You Have A “What if?”  If so, we invite you to contact us.  We look to offer feedback to any company that seeks our advice.  We do not seek compensation for the upfront time required to explore and qualify each company’s opportunity.

Companies routinely drive growth by asking then exploring, “What if?” Effectively exploring “what if” requires an understanding of corporate finance that many private companies do not have.