CHAPTER 12The Harvest Plan.ppt

CHAPTER 12The Harvest Plan Looking AHEAD Explain the importance of having a harvest, or exit, plan. Describe the options available for harvesting. Explain the issues in valuing a firm that is being harvested and deciding on the method of payment. Provide advice on developing an effective harvest plan. The Importance of the Exit Harvesting (or Exiting) 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 Methods for Harvesting a Business 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 firm’s stand-alone characteristics and synergies that the buyer thinks can be created by the strategic fit of the firm 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. Financial Acquisitions Selling the Firm: Buyers’ Reasons for Purchasing a Firm (cont’d) 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 contributions are used to purchase shares in the firm. Frequently is the exit method of last resort. Motivates the employee-owners to perform. Leveraged ESOP Buyout Process Releasing the Firm’s Cash Flows Harvesting by Withdrawing Firm’s 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 Requires patience to siphon off cash slowly 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 f