It has become a trend; a partial sale (or hipper: the pre-exit). A partial sale is an interesting option for entrepreneurs for whom a full sale is still too early, who want to grow their business even further, or who for other reasons are looking for an investor to strengthen their proposition.
We see partial sales more and more often, with private equity, strategic buyers or parties with a buy-and-build strategy taking over part of the equity interest; usually a majority interest.
A partial sale offers the opportunity for further growth of the business where such opportunities are more difficult or slower to achieve on a stand-alone basis. The company's potential is utilized.
The remaining interest is then sold at a later time at a higher valuation. Often together with the investor's interest.
The seller and the buyer will work together in the period after the partial sale to grow the business and its value. This allows the seller as entrepreneur to remain responsible for the operational side while the buyer as investor brings in new capital, skills and specific knowledge.
In addition to the agreements regarding the (partial) sale, agreements regarding the future cooperation must also be recorded. This is generally done in the shareholder agreement.
Important points of attention
Strategy
Given the goal of growing the business further and eventually selling it completely and at a higher valuation, a good strategy is important. A good strategy should allow the value of the company to grow. It is important to make good agreements about decision-making around important strategic decisions. Both in the boardroom and in the general meeting.
Exit
In line with the strategy, it is important to make agreements in advance about the future exit. The investor wants a free hand but the entrepreneur also has an interest. What do you agree on this? Are there parties to whom the entrepreneur does not want to sell the company in the future? What can be required of the entrepreneur? Under what conditions will the future sale take place?
Agreements are also made regarding the investor's right to co-sell the seller's shares(drag along) or the seller's right to co-sell(tag along).
Leaver provisions
Another important part of the shareholder agreement are the so-called leaver provisions. These lay down the consequences if the entrepreneur wants to leave voluntarily at a certain time or is forced to leave under negative circumstances or even situations such as long-term illness or death.
In what situations can or must he exit, at what valuation are the shares offered, to whom are they offered, and is there also a takeover obligation?
Important agreements to offer the entrepreneur comfort in his future situation.
Minority protection
It is also important for the entrepreneur to enjoy protection as a minority shareholder. This includes provisions on the provision of information or approval rights for certain far-reaching decisions, the dividend policy and strategic choices.
Dilution
Minority protection also includes protection against dilution. In order to benefit optimally from the increase in value of the company in the event of a future exit, it is important that the entrepreneur retains his interest in the company, or at least does not dilute it too much further.
This can be done, for example, by means of anti-dilution clauses, which ensure that the seller can retain his relative share in the event of future issues of new shares.
In conclusion
Just a few points of attention. There are more.
Making proper arrangements for a partial sale is therefore important to safeguard the entrepreneur's position. Seek advice on recording this and think ahead about the future of the company and the position of the entrepreneur.
