Partial Exits – A solution for multiple scenarios

What is a Partial Exit?

A partial exit is simply the terminology which is used to allow one or more shareholders to realise cash and reduce their shareholding.

There are multiple different scenarios where this could apply, for example:

• A company owner or a group of shareholders wanting to partially cash out
• To enable the exit of one or a number of shareholders with others remaining, often called a ‘buy out’
• To provide shares to the succession management team

The reasons behind these transactions are wide and varied, a few of which could be due to different ages of the shareholders and therefore retirement profiles, changes in personal circumstances, or simply commercial or strategic reasons.

What are the key benefits?

Depending on the scenario, the benefit of restructuring the shareholding could provide a myriad of beneficial reasons, some strategic and some financial:

• If you’re the owner it could allow you to crystallise some of your wealth and enjoy some of the fruits of your labour and provide financial security, whilst still working hard to grow/maintain the business
• Older shareholder(s) could take a step back, partially or fully, allowing others (owners or succession management) to buy their shares
• If there are disagreements on strategy this could provide a means to resolve them, by buying the shares of one party or the other
• As strategic disagreements often result in stalemate, then a partial exit in this scenario allows the company the opportunity to flourish strategically and financially

The transactions can be to pay out a shareholder or shareholders in similar or different amounts, or be a combination of payout to shareholders in part, full or zero (just in new shares issues to key management)

How do I finance a Partial Exit?

There are multiple ways to finance a partial exit, however, if a lump sum of cash is sought for Day One, then one of the most common ways is to raise debt within the business.

There is less reliance on stretching growth targets which would be key for a Private Equity solution and, with a Partial Exit, the debt quantum is usually comfortably serviceable given the lower amount required, and therefore has less risk attached.

Raising debt also allows more cash to be kept within the business and therefore lessen the trading risks rather than taking all the cash off the balance sheet to achieve the same outcome.

If you would like to learn more about any of the above, please contact our Corporate Finance team here, who have advised on a significant number of partial exits and would be delighted to discuss your options with you.