1、 2008 Cengage Learning. All rights reserved.,CHAPTER 12 The Harvest Plan,Developing the New Venture Business Plan,Part 3, 2008 Cengage Learning. All rights reserved.,122,Looking AHEAD,Explain the importance of having a harvest, or exit, plan. Describe the options available for harvesting. Explain th
2、e issues in valuing a firm that is being harvested and deciding on the method of payment. Provide advice on developing an effective harvest plan.,After you have read this chapter, you should be able to:, 2008 Cengage Learning. All rights reserved.,123,The Importance of the Exit,Harvesting (or Exitin
3、g) The process used by entrepreneurs and investors to reap the value of a business when they get out of it. The process involves: Capturing value (cash value) Reducing risk Creating future options, 2008 Cengage Learning. All rights reserved.,124,Methods for Harvesting a Business,12-1, 2008 Cengage L
4、earning. All rights reserved.,125,Selling the Firm: Buyers Reasons for Purchasing a Firm,Sales to Strategic Buyers A purchase in which the value of the business is based on both the firms stand-alone characteristics and synergies that the buyer thinks can be created by the strategic fit of the firm
5、and a potential buyer. Sales to Financial Buyers A purchase in which the value of the business is based on the stand-alone cash generating potential of the firm being acquired., 2008 Cengage Learning. All rights reserved.,126,Financial Acquisitions,Types of Leveraged Buyouts (LBOs),Bust-Up LBO,Manag
6、ement LBO,Build-Up LBO, 2008 Cengage Learning. All rights reserved.,127,Selling the Firm: Buyers Reasons for Purchasing a Firm (contd),Sales to Employees Employee Stock Ownership Plan (ESOP) A method by which a firm is sold either in part or in total to its employees. Employees retirement contributi
7、ons are used to purchase shares in the firm. Frequently is the exit method of last resort. Motivates the employee-owners to perform., 2008 Cengage Learning. All rights reserved.,128,Leveraged ESOP Buyout Process,Employer Firm,Selling Owner,ESOP Trust,Lender,1. Employer firm guarantees paymentof loan
8、.,2. ESOP trustborrows moneyfrom lender.,6. ESOP trustmakes paymenton loan.,4. Stock is sent toESOP trust forbenefit of employees.,3. Cash from loanis used to buyowners stock.,5. Employer firmmakes annualcontribution foremployee stockpurchases., 2008 Cengage Learning. All rights reserved.,129,Releas
9、ing the Firms Cash Flows,Harvesting by Withdrawing Firms Cash Advantages: Retain control of firm while harvesting investment. No need to seek a buyer or incur expenses associated with sale of business Disadvantages Loss of development potential and opportunities Tax disadvantages of cash withdrawal
10、Requires patience to siphon off cash slowly, 2008 Cengage Learning. All rights reserved.,1210,Harvesting: Going Public,Initial Public Offering (IPO) Benefits of the sale of shares of stock to the public: Signals to investors that a firm is a quality business and will likely perform well in the futur
11、e. Provides access to more investors when the firm needs to raise capital to grow the business. Helps create ongoing interest in the company and its continued development. Makes firms stock more attractive as incentive pay to key personnel., 2008 Cengage Learning. All rights reserved.,1211,Going Pub
12、lic: The IPO Process,The firms owners decide to go public. If not already completed, an audit of the last three years financial statements is conducted. An investment banker is selected to guide the IPO process. An S-1 registration is drafted. Management responds to suggested comments by the SEC, an
13、d issues a Red Herring/Prospectus. Firm goes “on the road” explaining its attributes to investors. On the day before the public offering, an offering price is decided upon. Offering the stock to the public and seeing how it is received., 2008 Cengage Learning. All rights reserved.,1212,Harvesting: U
14、sing Private Equity,Private Equity (Capital) Money provided by venture capitalists or private investors. Factors in the Transfer of Family-Owned Firms Liquidity for exiting family members Continued financing for company growth Maintenance of family control of the firm, 2008 Cengage Learning. All rig
15、hts reserved.,1213,Private Equity Financing,12-2, 2008 Cengage Learning. All rights reserved.,1214,Firm Valuation and the Harvest,The Harvest Value Opportunity cost of funds The rate of return that could be earned on another investment of similar risk Harvest Value/Market Comparable Valuation Establ
16、ishing the value of a privately held company based on the value of a similar or comparable publicly traded company. Multiple of earnings method is frequently used., 2008 Cengage Learning. All rights reserved.,1215,Harvesting: The Method of Payment,Payment Alternatives Cash Immediate and stable in va
17、lue Tax liability consequences Stock Immediate but uncontrollable in value Potential problems with disposal of stock, 2008 Cengage Learning. All rights reserved.,1216,Developing an Effective Harvest Plan,Manage for the Harvest Manage for the long-term. Avoid playing the harvest game. Expect Conflict
18、Emotional and Cultural Strains of selling own business Personal ties to the business after sale Get Good Advice Advisors with harvest transaction experience Other entrepreneurs who have sold their firms, 2008 Cengage Learning. All rights reserved.,1217,Developing an Effective Harvest Plan,Understand
19、 What Motivates You Motives for exiting: Money Independence Health of the company Your management team An heir apparent taking over Personal identity and the business itself Avoid “sellers remorse”, 2008 Cengage Learning. All rights reserved.,1218,Whats Next,Whatever you decide to do, do it with pas
20、sion and let your life bless others in the process., 2008 Cengage Learning. All rights reserved.,1219,Key TERMS,harvesting (exiting) leveraged buyout (LBO) bust-up LBO build-up LBO management buyout (MBO) employee stock ownership plan (ESOP) leveraged ESOP initial public offering (IPO) private equity opportunity cost of funds,
