1. Exit Strategies There is never enough time to do all the nothing you want. Bill Watterson My parents didn’t want to move to Florida, but they turned sixty, and it was the law. Jerry Seinfeld

2. Exit Strategies Harvest is the last of three entrepreneurial processes  Starting a company  Managing growth  Harvest or Exit strategies

3. Methods of Exit Harvest Strategies – There are four harvest strategies available to the entrepreneur Harvest Strategies – There are four harvest strategies available to the entrepreneur  Sell the firm  Withdraw free cash flows  Initial public offering  Private placement

4. Sale of the Firm Strategic Acquisition Strategic Acquisition  Buyer often approaches you  May pay a premium for synergy Financial Acquisition Financial Acquisition  Leverage buyout  Management buyout  Employee buyout or ESOP

5. Financial Acquisition Leveraged Buyout Leveraged Buyout  Associated with high amounts of leverage  Buildup used to consolidate industries such as auto dealers ESOP ESOP  Method of transferring ownership to employees  Can be used to prevent takeovers  Also receives favorable tax treatment

6. Initial Public Offerings Initial public offerings (IPOs) are neither a harvest or exit strategy. IPOs are used to finance the growth of the firm.  Costs – time consuming process, and being a public company has disadvantages (see Cargill article)  Investment banker is key in marketing, pricing decisions  Success highly dependent on market conditions

7. IPO Pricing Price is normally set just prior to the offering, and can be adjusted up or down depending on demand and market conditions. Price is normally set just prior to the offering, and can be adjusted up or down depending on demand and market conditions. Underpricing Underpricing  Historically, underpricing averaged around 15% to ensure a market, protect against litigation  Example: Offering price $ 10.00 Closing price – 1 st trading day 11.50 Return (11.50-10.00)/10.00 15%

8. IPO Underpricing Higher levels of underpricing (as high as 300-400%) have been more common recently. Higher levels of underpricing (as high as 300-400%) have been more common recently.  This largely reflects market conditions  Some internet companies have viewed underpricing as a form of marketing  High levels of underpricing is costly as it represents money left on the table  Only institutional and large investors get the IPO price. IPOs are normally not a good deal for investors who get in after the IPO.

9. You Make the Call Situation 3 – p. 577 How and why did Michael Lipper and Lois Silverman exit their firms? How and why did Michael Lipper and Lois Silverman exit their firms? How did these factors influence their satisfaction post-exit? How did these factors influence their satisfaction post-exit?

10. After the Harvest Consulting with buyer is one way to ease the transition Consulting with buyer is one way to ease the transition Need sound investment/retirement planning for proceeds Need sound investment/retirement planning for proceeds Seller’s remorse – not unusual to regret the sale decision Seller’s remorse – not unusual to regret the sale decision

11. You Make the Call Situation 1 – p. 578 What could the Waugh’s have done differently? What could the Waugh’s have done differently? What advice can you offer Bill in continuing as CEO for the new owners? What advice can you offer Bill in continuing as CEO for the new owners?