Posts tagged with: liquidity event

Preparing for a Liquidity Event – How To Maximize Enterprise Value Now

Advisors and buyers speak in a language most business owners have never heard before. Their term, ‘a liquidity event’ is a euphemism for many transaction options.

In financial terms, a liquidity event can be the merger, purchase or sale of an enterprise or even an entrepreneur’s Initial Public Offering. For established lower middle market business owners, a liquidity event is any exit strategy that converts ownership equity into cash for owners and investors.

Regardless of what type of exit transaction you choose to pursue, it is advisable to prepare well for that liquidity event. That preparation entails maximizing enterprise value now. It is essential to start early to produce and prove the maximum value your business should command in a liquidity event.

Preparing for the Transaction

Timing is Everything

You want to be in a position take advantage of any trends and growth opportunities in your market. This can also mean being open to recapitalizing the business, not just cashing out.

Lifestyle and Personal Goals

Business success offers a lifestyle and standard of living that are comfortable. Defining your personal goals, criteria, pursuits beyond the business takes time and often entails planning ahead. Without a clear plan for your reinvention, even if it’s the right time or right opportunity, you may not be ready to take that step.

Post-transaction Commitments

The terms of a deal are unique to every buyer/seller agreement. But unlike selling a house, there are strings attached to the deal you sign at closing for your business. Those commitments or responsibilities can impinge or constrain your transition plans. For example, the successful integration of your company, your team into the buyer’s organization or culture may require your assistance for months before the transaction as well as more time and involvement after the transaction itself.

Financial Considerations

The time to plan and prepare your retirement/reinvention financial requirements is long before the liquidity event, in parallel to preparing you and the business for this transaction and transition. For example, pre-transaction (before any type of liquidity event) establish your:

  1. Retirement goals and ensure they are engaging you and compelling you forward beyond the business
  2. Gifting plans and execute them
  3. Preparations for letting go – owners are often surprised how hard this is to do


Identify your potential suitors, or types of potential buyers/acquirers – at least 2, preferably 5 years ahead of your target date in order to be in a position to maximize value throughout the company:

  1. Strategic Buyers – they could be customers, distributors, vendors, even your management team.
  2. Financial Buyers – Financial buyers will look first at your cashflow, growth, management team, risks of ownership, fit in their portfolio, and any transition issues/difficulties they could face
  3. Industry Relationships and Associations can be great sources to explore the right fit, the best fit to achieve your goals for the company, your team, your timeline and your financial future.

Your Management Team

  1. Objectively assess the depth of your team, their tenure and experience, and their (not your own) customer relationships. – In a liquidity event, the buyer or investor wants to know that the company can thrive even more, without you at the helm, with a strong committed leadership team.
  2. Strategic Suitors and Financial Suitors will look at your management team differently. One will value their contributions through the transaction and integration. The other will be depending on them to perpetuate your success and growth well beyond the transaction.
  3. Buyers and acquirers expect that you have many legal elements current and in place to ensure your team will stay with the business including:
    • Non-compete agreements
    • Non-solicitation agreements
    • Employment Agreement – that doesn’t expire for a number of years
    • Transaction Compensation – These are financial incentives for them to stay (stock options, phantom stock, bonuses, a percentage of the transaction itself, etc.


If a liquidity event appeals to you and if your objective in that liquidity event is to maximize value to command the highest multiples, start planning now. It takes time to get ‘all your ducks in a row’. And since timing is everything, if you aren’t always preparing to maximize enterprise value, you could miss the window of opportunity when a liquidity event does appear.


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