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For three decades, Polish entrepreneurs have built serious and profitable companies. However, there comes a time when they start thinking about how to retire, how to cash in their assets or to whom and how to transfer the company. This issue is becoming increasingly important for business. Sooner or later, the succession dilemmas of the owners will affect every family business.
Succession in Polish business is a relatively new problem and it is difficult because today's 30-40-year-olds are basically the first generation to have any family assets to take over or inherit.
The succession process is neither easy nor quick. It is therefore worth planning it in such a way as to bring the greatest possible benefits to both the current business owner and future generations.
How to carry out a succession?
Regardless of the chosen succession scenario, the process requires thorough preparation on the part of the owner and the company. Below we describe several possible succession scenarios for your company.
Sale to a strategic / industry investor
If you want to maximize the valuation of your company and the value of the funds received, you should sell the company to a strategic or industry investor. They will pay the most for your company because they know their industry and will have potential synergies resulting from the acquisition of competitors. Usually, an industry investor buys 100% of the company and pays for the whole at the time of acquisition and settlement of the transaction. So if you want to maximize your funds here and now, a sales transaction to such an investor is one of the best solutions.
Selling to a strategic investor has at least two additional advantages: 1) you are usually “freed” from your company immediately after such a transaction; 2) you receive payment in the form of cash to your account.
Sale to a financial investor / fund
The sale to a financial investor is usually a sale of a part of the shares in the company at market price. Such an investor is typically a private equity fund that buys a part of your company in order to sell it for the highest possible price in the future. As a result of such a transaction, you receive cash for the sale of usually a majority stake (e.g. 60%), but you have to continue working with the fund and develop the company for the next few years until the fund sells its shares. Then, usually, 100% of the company is sold and you can resell your 40% for more than when you sold the first 60%.
The advantages of this transaction are, above all, 1) the sale of a significant stake in the company at a market price and the opportunity to continue working and participating in the company's growth in cooperation with the fund. The disadvantage may be that you still have to work and that the fund's objectives may not coincide with yours.
Management Buy-Out (MBO)
If your company has a management team that is interested in buying the company, this is a scenario worth considering. Usually, with a management buyout, it must be assumed that the company and the management team will have to go into debt in order to pay off the current owner. However, this form of buyout is flexible enough that a properly selected transaction structure provides the flexibility that can ensure the right amount of money in the first step (enabling the owner to retire) and determine the possible involvement of the owner and repayment of all shares in the future. Such a transaction can be settled in a single payment (e.g. with the support of the management team through an MBO fund) or calculated to settle the investment over a period of up to several years.
The advantage of this form of succession is that the management team usually knows the company being bought very well and knows what it can afford. The disadvantage may be that the settlement of the transaction will be spread over time and may require you to continue to be involved in the company's affairs.
Selling or transferring the company to family members
Selling or transferring a business to family members is the first choice for many business owners, and if one or more relatives are already working in the business and are interested in taking it over, the transaction can be organized to everyone's advantage. The process can begin with an independent valuation of the business, which can be used to organize the financing of the sale or to determine another structure for the settlement of the transaction. After determining your ongoing income needs, you can agree to receive a lump sum payment, directly finance the sale, or receive a salary. You can also choose to retain an ownership interest and work with the new owners in a defined role, such as a member of the supervisory board.
Succession through an Initial Public Offering (IPO)
An initial public offering (IPO) can be an attractive exit strategy due to the possibility of a significant payout for owners, but for many small and medium-sized companies, an IPO may be the least likely option. The process of preparing for an IPO is quite complex and time-consuming – preparing a prospectus and formal approvals require hiring specialized advisors and involving a dedicated team within your company. Moreover, the appetite for IPOs tends to fluctuate with stock market movements. In 2022, there were only half as many IPOs worldwide, and in Poland the stock market has become much less popular in recent years.
The advantage of this solution is the relatively high market valuation and the liquidity of your company's shares after the IPO. The disadvantage is that you cannot sell the entire company in the IPO and you have to continue working in the company after the IPO. Of course, you can plan to move to the company's supervisory board and prepare all the steps to hand over the company to a professional management team.
Why is it worth planning the succession in advance?
Succession is a difficult process, especially in the first generation. There is an emotional attachment to the company that has been built, a lack of experience in selling or transferring the business, and a low awareness of the valuation and time needed to sell the company or transfer it to the next generation.
It is worth considering unexpected factors that can disrupt the succession process – loss of health, accident, divorce or death of the owner are random events that we usually do not want to think about. These types of scenarios are difficult to predict or plan for. However, it is worth preparing certain processes in advance, which, even in critical scenarios, will not prevent an effective and valuable company succession.
Summary
Plan your preferred company succession scenario in advance. Consider whether you want to and can sell the company or whether you want to keep it in the family. Choose a succession scenario and prepare for it. Get professional advice on the transaction structure, company valuation and the chosen succession scenario. Consider critical scenarios to ensure a successful and valuable company succession.
About us
PlatformaInwestora.pl is an internet service that brings together users with interesting business and capital offers and investors looking for ways to invest their funds. Our service helps to raise capital, find a partner, finance start-ups, sell shares or entire companies, and presents interesting forms of investment. The portal reaches a wide range of investors, both Polish and foreign, and the number of industry offers makes it one of the leading capital investment services. Our employees actively help to edit investment advertisements because the mission of the PlatformaInwestora.pl website is to realize the business goals of our clients and help them to conclude as many business transactions as possible through us.
author: Bartlomiej Dmitruk
