Managing underperforming assets of closely held enterprises: when is it time to sell?
Ruth L Lansner, Holland & Knight LLP, New York
Luis González, Solórzano, Carvajal, González y Pérez-Correa SC, Mexico City
Brent Holliday, Capital West Partners, Vancouver
Jeremy South, Deloitte, Vancouver
The session will explore the alternatives available to the owner-manager when its business starts to founder, with an emphasis on how to protect the owner-manager's equity value through sale or selective disposition of assets. In the first half of the session, two investment bankers, both with private equity experience, will lead a presentation and discussion contrasting the financial and non-financial ‘drivers’ internally motivating the owner-manager to sell, with the dynamics operating in the external business environment in which the owner-manager is seeking to sell. The second half of the session will consist of a case study led by the investment bankers highlighting these internal and external considerations relevant to the decision to sell.
Co-Chairs warm up on this panel’s topic
An astonishing number of closely held businesses close their doors within three generations of ownership, in some parts of the world two-thirds of businesses do not make it past this threshold. The factors involved range from poor planning, to personal complications, to downturns in the economic cycle, but whatever the reason may be, any closely held enterprise needs to face the harsh reality in anticipation and implement contingency plans before the decision to sell is imminent.
Many closely held business owners devote their time and energy on the day-to-day management of the company, without a clear strategy for the future. A general reluctance in this sector to alignment with best practices common for publicly traded entities has played a significant role in the statistic mentioned above. Typically, private owners view the corruption and mismanagement endemic to public corporations, or at least in the media portrayal of such, as a disease of corporate culture. But, no matter the size of your business, proper preparation is essential to the health of your business.
Depending on size, long-term goals, and a variety of other factors, closely held business owners should sit down with their team and outside consultants to discuss existing routes in times of success and distress. Many times, this process is more difficult than the overall operation of the company, as certain harsh realities must be faced. But if drawing up a plan to deal with a sale of underperforming assets is a difficult task, executing such a plan and/or deciding to sell such underperforming assets is sometimes even harder to execute. Once the decision to sell is in place, understanding all the issues will be essential to a timely, successful sale with the most benefits to the owner, shareholders, family members, employees, and customers. Without this roadmap in place, unwinding a business becomes an unruly, contentious process that can lead to divisions and an undervalued valuation.
We hope all of you will discuss with clients and potential clients the importance of long term preparation in business, but especially in closely held companies. In order to provide greater insight into the actual considerations during a sale, we are honoured to have two experts in the field to provide their expertise about internal and external considerations involved in the decision to sell underperforming assets: Brent Holliday of Capital West Partners, and Jeremy South of Deloitte Canada. Their presentation and case study will explore the financial and non-financial ‘drivers’ of the sale decision, along with analysing the operation of a business with underperforming assets. As lawyers, it is always vital to have the industry perspective on the issues our clients face, and this will provide a unique opportunity to glimpse inside the factors involved from that perspective.