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Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests + Website, 2nd Edition by Robert T. Slee

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CHAPTER 33

Outside Transfers: Continue

Many owner-managers of private companies wish to transfer all or part of their business to an outsider, but they plan to continue operating the business for the foreseeable future. Some owners want to continue to have a financial interest in the business going forward. Frequently they need growth capital but do not want to risk their personal net worth in the process. Owners can choose between two primary transfer methods to meet these goals.

1. They can transfer their business to an outside entity that is consolidating similar companies across the industry. When the consolidation occurs simultaneously with an initial public offering, the transfer is called a roll-up.

2. Owners can choose to transfer most of their business to a company controlled by a private equity group, which then funds an aggressive growth plan. These transfers are called recapitalizations.

This chapter describes these two transfer methods.

Even though the ultimate transfer occurs to an outside investor, some of the transfer methods described in earlier chapters can be incorporated into the sale. For example, it is possible to use charitable trusts, private annuities, or grantor-retained annuity trusts as vehicles for the transfer to an outside buyer. Many owners hire a business broker, mergers and acquisitions intermediary, or investment banker to assist in arranging the outside transfer. Further, the transfer processes described in Chapter 32 can be used to market ...

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