Shareholder exits
For the same reasons that a private company can be difficult to value, so too, it can be difficult for shareholders in private companies to achieve exits.
Matters that can affect shareholder exits include the following: -
• one shareholder seeks to retain a shareholding, while others wish to exit. The new owners may or may not be interested in continuing the business with that shareholder,
• one shareholder wishes to retire and take cash out of the business, another shareholder wishes to hive-off part of the business that they have worked most in, and another wishes to continue to be employed,
• the shareholders disagree about the value of their shareholdings,
• family owned businesses when they move to the second or third generation, may involve more family members in the business, ormay become less easy to control with loss of business focus and drive,
• the brands or business niche may not be adequately protected, or the role of cmpetitors may change and present a stronger threat to an established player, thereby weakening its competitive position,
• a business may be heavily dependent on the input of one shareholder or person who has driven the success of the business, or
• there is no pre-agreed structure in place for succession, for replacement of key personnel, or for retirement.
As a result, it can be quite difficult to achieve an exit easily for shareholders in a private company.
Some mechanisms can be included in the structure of the shareholdings and the rights attaching to them, in order to make a shareholder exit more easily achievable.
Exit mechanisms can be agreed in advance to prevent a shareholder blocking a change in shareholders, or to ensure that a majority shareholder is part of arriving at a satisfactory exit valuation.
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