How to get the best return on investment during a transmission ?
Since the creation of his company, an entrepreneur invests time and money to create it, develop it and make it prosper.
Sometimes he has put all his savings into the company and sometimes he has not even received a high salary, so that his personal assets are often quite modest while the value of his company can be very high.
How can this business owner recover the fruits of his investment?
Can the value of a company be transformed into money in the pocket of the entrepreneur?
Is it possible to recover part of one’s investment while keeping part of the capital invested in the company?
Today, many business owners want to secure the investment they have made in their company or simply want to enjoy life a little more comfortably financially.
They don’t know what tomorrow will bring and tell themselves that if one day their company encounters a difficulty, it would be good if they had already secured their personal assets as well as the future of their family.
They would like to reap the benefits of their investment, which for the moment is stuck in the company and not in their pockets.
But how do you ensure that the value of the company is transformed into liquidity and that this liquidity then lands in the pocket of the entrepreneur?
Turning a company’s value into cash can be done in several ways.
The company director can sell all or part of his shares, which is a simple and effective method.
However, this option sometimes has disadvantages if the business owner is still far from retirement age, only wishes to secure his investment and wants to continue managing his business.
In particular, the total sale of the company for a young entrepreneur is a risky operation. He knows what he has today: a company that has a significant value. He knows what he is doing: he is running a company that he is developing and that brings him satisfaction. Tomorrow, if he has sold, he will recover the sale price of the company with a significant tax penalty, but in addition, he will have to build a new professional life and start from scratch.
This is why the global transfer of the company is not always the best solution to make your investment in a company liquid or even to get the best return on your investment because if your company is sold it does not generate any more income.
What are the other solutions to recoup your investment?
First of all, the entrepreneur has the possibility to transfer only a part of his capital to a financial partner
In particular, he can open his capital to an investor who will let him continue to develop his business.
In this situation, the financial partner enters the capital either by partial transfer of the shares or social shares or by increase of capital.
The interest of this arrangement is threefold:
- on the one hand, the entrepreneur immediately recovers a part of the fruit of his investment,
- on the other hand, he continues to freely manage his business in collaboration with a partner who can provide financial support for his development.
- Finally, he can also continue to benefit from the company’s growth since he will continue to receive dividends on the remaining capital.
Another solution is to open up the capital to a strategic or industrial partner rather than a financial one
Opening the capital of an SME to a group in the sector or in a related sector can address several issues.
The advantage of this formula is on the one hand to recover part of its investment through the transfer of shares, but above all to benefit from a technical and logistical support which can allow a lightening of the workload following the mergers of services carried out with the group (accounting services, invoicing services, commercial services, financial services, legal services, etc.) but also a contribution at the level of technical competences or at the commercial level by the contribution of a new distribution network for example.
The company manager can thus recover part of his investment and work less while being more efficient!
Finally, I can’t end without talking about OBO.
Behind this rather barbaric term, there is an interesting mechanism that practically allows you to sell your company twice. How is this possible? How can the same company be sold twice?
Actoria benefits from a strong expertise on this mechanism that it has applied on companies located in several countries in Europe: Belgium, Switzerland, Luxembourg, France.
First of all, it should be noted that not all companies are eligible for this scheme.
The company must be relatively old, with a rather double-digit and regular growth.
This is very important because this set-up is a real bet on the future!
Let’s take the example of a company with a Net Profit of 5 M€ valued at 35 M€ (7 x NR). The entrepreneur plans to sell 50% of the company’s capital to a holding company, i.e. a capital value of 17.5 M€.
To finance these 17.5 M€, a financial investor, interested in entering the capital of this holding, is ready to invest 10 M€. A bank agrees to lend the balance of 7.5 M€.
The company director jointly contributes to the takeover holding company the remaining shares, i.e. 50% of the capital, that he holds for a value of €17.5 million.
In this example, the capital of the takeover holding company is €27.5 million (€17.5 million from the contribution + €10 million from the financial investor), 64% of which will be held by the company director and 36% by the financial partner.
This operation allows the company manager to sell 50% of the capital of his company while remaining a shareholder of more than 64% of the holding company.
In this case, he receives 17.5 M€ in cash while keeping control of his company!
The company director will thus continue to hold a strong majority in the capital of the takeover holding company (64%) while he has only sold 50% of the target’s capital.
The interest of the operation is that he will be able to benefit from future dividends up to 64% and if the value of the company continues to grow, after a few years, the value of his 64% will have strongly increased and he will have the possibility to sell all or part of this capital at an increased value.
There are therefore multiple possibilities to recover all or part of one’s investment in time and money on a company without necessarily selling it completely.
It is important to take the time to study all the possible options in order to identify the risks of each option and to set up the most suitable arrangement for your particular case.
Fabrice Lange
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