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Knowing When The Time is Right to Exit

By Generational Equity

02/15/2021

I recently watched a really interesting interview on ACG’s Growth TV. Kathryn Mulligan, the Editor in Chief of Middle Market Growth magazine interviewed Jennings Cooksey IV, founder and managing member of JMTD Group, to discuss the sale of McCall Service, the pest control and lawn care company that has been in his family for more than 60 years.

I found their discussion insightful and very timely because Cooksey discusses how his family, as it was entering its 3rd generation of family ownership, made the tough decision that now was the time to exit.

These two key points stood out in particular:

  • The third-generation transition usually “drops the baton” and the family business declines or even dies.
  • It is vital to avoid confusing business issues with family issues because that usually leads to bad family issues!

In our experience, too many families put off the discussion of exiting their business far longer than they should. As Cooksey points out, it is only after a cadre of cousins, nephews and nieces take over and run the company into the ground that families finally have these tough talks – but by then it is too late and a fire-sale often occurs.

The Cooksey clan did it right. They pulled the entire family together (Dad, three Uncles, and 16 cousins) and had a wise conversation about the future of the business. Because of this family meeting, an investment bank was hired, and a perfect buyer was found for McCall Service (Rollins).

This is an ideal scenario, one that we see in our work as well. But sadly, as I said, often families stall on these vital meetings because of inter-family dynamics that impact the ability of one and all to make logical, impartial decisions.

Have you had a family meeting about your exit strategy?  

Your company may not be in its third generation and have dozens of family members involved. No matter how many are part of the equation, having a meeting to discuss the future of your business is vital.

Another option to a 100% acquisition by a third party is a "partial sale". This is a great option in situations where some family members want to stay and continue running the business, while others want to be cashed out.

Private equity firms usually are fantastic sources for this kind of transition because family members who want to stay become part-owners of a new recapitalized entity and can reap the benefits of a "second bite of the apple" years later, while family members that want (or need) to exit can now do so. This also gives the organization access to new capital via the equity firm, possibly allowing for extensive new growth opportunities.

We recognize the family dynamics of exiting, especially in a company with multiple generations partially or fully involved. But it is crucial. Part of our success is the decades of experience our deal teams have in helping entrepreneurs and their families (and generations of family members) navigate this very challenging process.

Having a professional M&A team by your side is essential, especially during discussions like this. Listen to what a few of our clients have told us about the importance of planning an exit:

Keep in mind that there are two kinds of business owners and their families:

  • Those that PLAN to EXIT
  • Those that HAVE to EXIT

When you mix in multiple family generations, this becomes even more clear!

So, I would encourage you, as the Cooksey family did, to begin talking about how and when you want to exit long before you have to exit. And do so with intentionality and wisdom knowing that the legacy you leave behind will be valuable AND that, quite often, younger generations of family members have no desire to toil in the family business like generations before them.

To learn more about how we can help you and your family on a successful exit journey, please use the following links:

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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