Strategic Options
What are examples of “strategic options”?
HarloKyn is here to help support founders and their businesses as they start to contemplate an exit, the next growth phase, or an acquisition. Our responsibility is to help illustrate how certain options can impact your equity and providing insight to inform your decision-making.
Succession and exit planning
First, what are your goals for your company? Liquidity? Generational transfer? Growth capital? As a business that has supported your family and lifestyle, are you looking to transition the company to the next generation? There are a number of interesting (and perhaps not-so-interesting) directions to consider outside a generational transition. At HarloKyn, we offer a “Strategic Assessment” that illustrates and describes your potential options in the context of today’s markets.
We help identify similar companies and similar transactions to help offer a comparison of how your business “fits” with market trends, investor interest and recent (and relevant) mergers and acquisitions (“M&A”).
Full sale
The most obvious option is a total sale of your business. In this, we will help you find an equity partner to buy the company that will provide the best solution you see to the future of your business and maintaining the legacy you have created. HarloKyn can partner with you to help through this process and ensure you can achieve a fair market price for the years of hard work you put into the business.
If you have goals larger than the current value of your business, we would also like to assist if advising ways to help increase the value of your business to achieve those goals.
Majority sale or recapitalization
A Majority Recap is one of the most common exit options utilized by Private Equity firms. It is ideal as the initial purchase price is reduced as the existing owner will roll a portion of their equity (probably 20%) into the new ownership. Since the transition period will usually take 6 months to 2 years, this give the owner an incentive to see the company grow under new leadership. Since Private equity don’t have to capitalize the acquisition as much, this frees up their capital for more deals. The benefit for owners is that you gain a majority of your sale now (assume 80%) but the remaining 20% will gain value over the 3-5 year holding period of the firm, and in most cases, bring the owner even more capital on the next sale. (See chart for visualization)
Why Majority Recaps Can Be Beneficial
$ in Millions, Assuming 2x growth in 5 years
Minority equity investment
A minority recap is a way for an owner to gain capital to help grow the value of the company. As primarily growth capital, the investors will be seeking an exit or sale of a company typically within 3-5 years from their initial investment. Ideally, an owner can sell a smaller portion of their company (assume 30%) and in the time, increase the value of the business to such a degree that their 70% ownership will be worth more after the investment and growth than 100% would be in a status quo.
Debt recapitalization
A debt recap provides business owners a means of liquidity backed by the company, used for growth or additional capital needs of the individual. This allows the owner to maintain 100% equity control while gaining the needed capital for whatever is needed.
Overall, HarloKyn’s goal is to support owners in achieving their strategic objectives in the next phase of their lives. We seek to provide strategic advice and support owners in the process they choose as valued partners in moving towards these next steps.
