Liquidity Alternatives for Business Owners

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Liquidity Alternatives for Business Owners

By Steven Susel

Building a successful business is one of the most challenging and rewarding endeavors that a person can undertake.  However, more difficult than building a successful ongoing business is generating liquidity to extract your investment and related profits. Over the next 15 years, an estimated 8 million businesses owned by baby boomers are anticipated to seek liquidity for their ownership stakes in these privately held businesses.

Considering the heightened volatility and uncertainty in today’s markets, the limited marketability of a closely held business, and the growing number of businesses facing an ownership change, it’s imperative for business owners to develop an integrated business succession and estate plan.  A comprehensive plan should address the business owner’s objectives and priorities such as family succession, operational management, employees, tax efficiencies, and protecting the legacy created.  These comprehensive plans should be developed well in advance of commencing any liquidity generating process.

There are four standard liquidity alternatives for a privately held business.  They include:

1)   a management buyout,

2)   a stock redemption,

3)   a third party sale, or

4)   a sale to an employee stock ownership plan (“ESOP”).

With regard to the first two alternatives, often management teams do not have the resources to complete a buyout, and companies do not have sufficient excess cash to redeem shares.  Consequently, the latter two alternatives – a sale to a third party and a sale to an ESOP – may be the most practical alternatives for consideration.  While both of these liquidity alternatives are designed to generate cash for selling shareholders, each alternative has its own distinct characteristics that warrant evaluation relative to a business owner’s objectives.

A sale to a third party typically provides:

–      Immediate liquidity for some portion of the sales proceeds (depending on terms and conditions of the sale and earn-out)

–      Exit from the business; transfer of total control and liability

–      An opportunity to “auction” the business to secure the highest value

–      The potential to maximize value of intangible assets

–      Limited tax efficiency

–      Limited protection of the company legacy, management team, and employees


A sale to an ESOP can provide:

–      Immediate liquidity and the ability to sell stock over a transition period

–      An exit strategy and plan whereby the owner maintains control during the transition

–      Sale of the stock at full fair market value

–      Possibility of deferring capital gains tax on the sale (permanently, in some cases)

–      Pre-tax financing to the company

–      A “reward” to the management team and employees

–      Protection of the company legacy and perpetuation of the business

A comprehensive succession plan should carefully consider these alternatives and their respective features, comparing the benefits, costs, and any attendant constraints that would preclude meeting the business owner’s goals and objectives.

Generating liquidity for a business requires careful planning and proper implementation. Whether you’re a financial advisor faced with the challenge of assisting your business owner clients to develop a business succession plan, or you’re a business owner facing the liquidity challenge of privately held equity, Marshall & Stevens can help.

Please call Marshall & Stevens for a complimentary consultation about your liquidity alternatives and a feasibility discussion. We welcome the opportunity to speak with financial advisors and business owners to discuss how we can help you achieve your objectives.


Steven Susel

Managing Director

Marshall & Stevens/MS Capital

New York, Philadelphia, Baltimore, Tampa

Office: 212.425-4300 xt 2107

Cell: 410.375.0202

E-mail: [email protected]


Established in 1932, Marshall & Stevens is a recognized leader in valuation, serving business owners, managers, boards and trusted advisors throughout the world. We assist our clients with planning, due diligence, negotiation and reporting issues related to their mergers, acquisitions, divestitures, financings, insurance placement and tax related transactions. Our in-house specialists provide a full complement of valuation-related services, from transaction advisory and opinion letters to the valuation of businesses and business assets, both tangible and intangible.  

Marshall & Stevens provides business consulting services and valuation opinions, including the installation of employee stock ownership plans. We are not attorneys or accountants, and nothing herein is intended to constitute legal or tax advice.



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