It is common for SME businesses to be transferred by a DGA and for the DGA to eventually reinvest in the buyer (the pre-exit). The term "pre-exit" really says it all; you plan to leave the business eventually, but you're not quite gone yet.
The road to exit is just set. Facing a pre-exit? Then be well prepared for the final exit as well.
Exit strategy
Ideally, discuss together as early as possible what the long-term plans of both the DGA and the buyer are for the company. Do the parties intend to sell the company in the long term or not? How should the business develop and what commitment is needed from whom? Who will say goodbye when? What value (development) should the company have in the event of a sale?
It is important to discuss this with each other. If a DGA is looking for a long-term partner and the interested party is interested in a quick win, there is a mismatch in expectations. The exit agreements are often not discussed in concrete terms until the shareholder agreement is drawn up. In the acquisition process, that is a piece that is not shared until relatively late.
Aandeelhoudersovereenkomst
Exit provision
You may choose to include a specific exit provision in the shareholder agreement. This often states who has the lead in the exit process, that parties are bound to carry out that exit and often also what the role of management and/or the DGA is after the exit.
This is often included to facilitate the sales process upon exit. A package can then be offered in which management and DGA have agreed in advance to remain involved and that is worth something. This may already include a concrete term of involvement and may even stipulate that the DMS will commit to a non-competition clause for x years.
A buyer will want this, but for the DGA, it is obviously important to check whether this matches the DGA's own future plans and the exit the DGA himself envisions.
Lock-up
A lock-up is a prohibition on shareholders selling their shares during a certain period of time. This may be desirable, for example, if the DGA is needed for a minimum period of time for the development of the company, or, conversely, if the DGA wants to prevent the buyer from speculating with the shares and, in the event of a good offer, wishes to proceed immediately with the sale of the company.
If the exit strategy is clear, then the lock-up helps focus that strategy and the term of the lock-up is based on the terms named in the exit strategy.
Leaver provisions and drag-along and tag along
Provisions that deserve extra attention in the context of the exit are the leaver provisions (offer obligations), drag-along and tag-along provisions usually included in the shareholder agreement.
If there is an exit strategy, lay these provisions alongside it and see if they are in line with that strategy and do not lead to an unexpected or undesirable premature exit. For example, it happens that a drag-along can already be invoked during the lock-up and the buyer can still speculate with the shares, or that the DGA is a leaver if he is dismissed against his will outside the lock-up period and therefore cannot benefit from any final exit proceeds.
It would go too far to discuss all the ins and outs of the exit and the agreements that can be made in that context. In the event of a pre-exit, at least be aware that the exit must be well discussed and arranged.
