Engineering an Ownership Exit

How Platinum helped three owners achieve their personal retirement and liquidity objectives

Situation

A successful, 30-year-old mechanical and electrical engineering firm had three owner/managers that were all nearing retirement age. None of them had previous experience with an owner exiting from business, so they turned to outside help after hearing about successful owner exit and succession steps that had been developed for similar firms with Platinum Group’s expertise.

Challenges

After initial discussions, it was evident all three owners wanted to exit within an 18-month-period. Financial projections indicated this was not economically feasible within the existing buy/sell agreement. How could the owners achieve their personal retirement and liquidity objectives given overlapping ages and exit times?

Response

A five-year, forward vision for this firm — accompanied by business projections and a cash-flow forecast — provided a realistic foundation for funding that could be applied to owner stock repurchase and retirement/ exit. Platinum helped the owners develop a phased departure plan: one leaving nearly immediately, another after 18 months and a third departure after two more years. Simultaneously, leaders for the next generation were needed to step into key roles, guide the firm through sustained growth and profitable performance, and generate the cash flow to fund the owners’ exits.

A five-year, three-tiered structure was developed that invited high-performing managers and senior project managers to voluntarily commit themselves to a leadership team. Being identified as a potential future leader carried additional opportunities for management, and responsibility for business results with corresponding rewards. Success in these expanded roles would open further opportunities for these team members to grow in responsibility and leadership and, potentially, future ownership.

Results

Two years after the plan was put into place, one owner has exited with his shares repurchased by the firm. The second owner is scheduled to retire at the end of 2007, 18 months after the first retirement, with his shares repurchased according to the buy/sell agreement. A third owner will continue as the CEO and Board Chair, augmented by the new 12-person leadership team from which three members have been identified as an executive team. These executives stepped up to key functional leadership roles and will likely be future owner candidates. The firm is having a record year, and prospects are good for broader business development, client diversification and development of leadership skills by the executive and leadership teams.

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