EagleTribune.com, North Andover, MA

February 10, 2013

Baby-boomer business owners begin exit planning

By VIRGINIA BRIDGES
Scripps Howard News Service

---- — When Great Outdoor Provision Co. founder Tom Valone announced in January that four members of his management team would acquire his business -- the largest independent specialty outdoor retailer in the Southeast --he accomplished something many business owners never do.

He created and followed an exit strategy.

As baby boomers near retirement, those who own private businesses will face a decision similar to that of Valone, of Raleigh, N.C. But his foresight and planning isn’t the norm, said Rob Alexander, Valone’s accountant, and a partner with Raleigh accounting firm A.T. Allen & Co.

“The guy that doesn’t have a plan is a whole lot more common than the guy who does,” said Alexander.

Christopher Snider, president of Exit Planning Institute, an organization that provides education to advisers who work with owners leaving their businesses, said most people don’t give themselves sufficient time to properly plan.

As a result, owners sometimes regret the decision to sell, or realize that they could have made more money on the sale. Also, many owners aren’t financially prepared for the loss of business income and end up going back to work, Snider said.

About 60 percent of privately owned businesses are owned by baby boomers, based on the most recent U.S. Census Survey of Business Owners. About 10,000 baby boomers are retiring every day, according to Pew Research Center population projections.

“It is just inevitable that over the next 20 years, 60 percent of the businesses are likely to transition in some way,” Snider said. “In that kind of a situation, only the businesses that are in good shape, that have taken time to minimize risk and have taken the time to make themselves attractive are the ones that are going to sell.”

The majority will end up liquidating, the least favorable option, or selling at a significant discount, Snider said.

For his part, Valone likens the exit-strategy process to Paul Simon’s hit song “50 Ways to Leave Your Lover.”

The decision to sell the company he co-founded in 1972 came, he said, after Valone spent several years exploring options.

Valone’s sons don’t want to take over, he said, and an employee stock ownership exit was expensive and required a leader to remain in place. Private equity firms, which had been contacting him for years, were not an option.

“Everyone I spoke with who went (with a private equity firm) said it was a blood bath on their valued staff,” said Valone, 62. “It just didn’t feel good.”

Valone expects his physical exit to take about three years and his financial exit to take about 10.

That’s typical for most exit plans, which can take from three to seven years to complete, including a year to get the business ready and a year to go through the transition process, Snider said. Also, in most cases, owners have to finance about a third of the transaction, which could add three or more years, Snider said. Tax and business strategies, such as demonstrating earning power through financial statements, could take one to three years to execute.

Inside exits involve selling to employees or family. Outside options include strategic buyers such as a competitor or someone in the same line of the business, or a financial buyer such as individual or a private equity firm.

About 10 years ago, Valone realized he’d have to make a decision about the company’s future. He attended a seminar on employee stock ownership, but didn’t like the costs, structure or regulations.

“It wasn’t really quite the bed of roses that it sounded like,” Valone said.

Private equity groups promised not to tear the company apart, but Valone didn’t believe them. The business has seven stores and about 150 employees.

About two years ago, Alexander suggested that Valone sell Great Outdoor Provision to his management team. Alexander had noticed that Valone was more relaxed than usual. Valone attributed it to his management team.

“These people have the same passion for the outdoors, and they have got the same passion for this company that I have,” Valone said. “That is a blessing as I see it.”

Virginia Bridges writes for the Raleigh (N.C.) News & Observer. Contact her at vbridges@newsobserver.com.