Continue in business or sell the company? This question comes up regularly among entrepreneurs.
Personal motives and market developments often play an important role. The moment of sale is attractive, but you do not want to stop doing business completely yet. A pre-exit then offers a solution.
In a pre-exit, you sell part of your shares to an investor, with the goal of selling the remaining part later. So you remain active, but already realize part of the value. Dexe expert contribution discusses what it entails, for whom it is suitable, and the pros and cons for you as an entrepreneur.
What is a pre-exit?
A pre-exit means that you sell part of your shares to an investor (for example, private equity or a wealthy family). Together with the new co-owner, you commit to growth and innovation.
After 3 to 5 years, the full exit usually follows, where the company is sold completely. This approach results in higher returns because an investor can add value through strategic support or network.
Does a pre-exit suit you and your business?
The pre-exit is ideal for entrepreneurs who are not yet ready to quit and are ready to take on another challenge, such as international expansion or serving larger clients. Entrepreneurial experience and motivation are essential here.
A pre-exit requires the ability to cooperate with another shareholder. This means that strategic decisions are made jointly. For entrepreneurs who are used to deciding everything themselves, this can be an adjustment.
The process of a pre-exit
- Prepare structure: A new limited liability company is often formed to simplify the transaction.
- Sell shares: You sell 100% of the shares to the BV, then reinvest a portion (minority interest).
- Implement strategic plan: Together with the investor, you work on growth.
- Full exit: After a period of growth, you also sell your stake.
The benefits of a pre-exit
- Financial security: By cashing in a portion of the proceeds, you are more likely to achieve financial independence.
- Focus on what you love: You can focus on your core tasks while responsibilities are shared with the investor.
- Value Creation: Successful collaboration grows the value of your business.
What should you pay attention to?
- Motivation: Do you have enough energy to make the collaboration and growth strategy a success?
- Limited control: You share decision-making with the investor, which requires good coordination and cooperation.
Pre-exit in practice
An entrepreneur sells 100% of his shares for €12 mio. Financing of €5 mio is raised. Therefore, the entrepreneur reinvests 40% (€2.8 mio), while the investor contributes €4.2 mio. The entrepreneur therefore receives €9.2 mio cash at closing.
Five years later, the company's EBITDA has increased from €2.4 million to €4 million and the multiple from 5x to 7x. With the eventual sale at a higher valuation (higher EBITDA as well as multiple), the bank debt is now paid off and the entrepreneur receives €11.2 million (40% of 28 million) for his remaining interest.
The total revenue for the entrepreneur is then €20.4 mio, considerably more than in direct sales.
Pre-exit: 'best of both worlds'
A pre-exit offers entrepreneurs the opportunity to continue doing business while securing value. It is a gradual sale that provides both financial and strategic benefits. Together with an investor, you can build a stronger, more valuable business.
