Exit strategy: planning the founder's departure

Sooner or later every founder leaves their company: to sell, to retire, to hand over the baton to the next generation or to seize an opportunity. The exit is not a sudden event to be managed when the offer arrives, but a process to prepare years in advance. The exits that best realise the value of a life’s work are the planned ones; the improvised ones leave money on the table and drag along tax and continuity risks. Let’s look at the options and how to prepare.

The exit options

Sale to a strategic or industrial buyer. A competitor, a customer, a supplier or a group buys the company to integrate it. This is often the route that pays the highest price, because the buyer recognises synergies. It does, however, require a company that works even without the founder.

Sale to a financial investor. A private equity fund takes over the company, typically through a leveraged operation (leveraged buyout). The founder can exit entirely or stay on with a minority stake and reinvest in the growth project.

Management buyout (MBO). The management team takes over the company, often with bank support. It ensures continuity and culture, but requires the managers to find the capital and the price to be sustainable for the company’s cash flows.

Generational handover. The baton passes to the children or the family. It is an operation as emotional as it is technical: it must be handled in advance with regard to governance, fairness among heirs and the taxation of gifts and inheritances, which in Switzerland varies significantly from canton to canton.

Stock market listing (IPO). Feasible only for companies of significant size and maturity. It offers liquidity and visibility but entails costs, transparency and high constraints; in practice it concerns few cases.

Making the company saleable

Exit value is built beforehand. A company is “saleable” when:

• it does not depend on the founder: if everything revolves around one person — relationships, decisions, know-how — the buyer discounts the risk or walks away. Delegating and building a second management tier is the most important value lever.
• it has clean numbers: orderly accounting, reliable financial statements, clear margins. The buyer’s due diligence rewards transparency and penalises surprises.
• it has recurring revenue and diversified customers: the predictability of cash flows is worth more than their size.
• its legal situations are in order: contracts, intellectual property, licences, disputes, staff situation. Every unresolved knot becomes a discount on the price.

This work takes years: that is why exit planning should begin well before the actual departure.

The tax aspects

In Switzerland, the sale of shareholdings held in private assets in principle generates a tax-exempt capital gain for income tax purposes for the individual. But the exceptions are numerous and treacherous and must be verified case by case:

• indirect partial liquidation and transposition, which can requalify as taxable income what seemed to be a tax-exempt capital gain;
• the transfer of business assets rather than private ones;
• the aspects linked to distributions, reserves and the 35% withholding tax before the transaction.

In a generational handover, cantonal inheritance and gift taxes come into play. The structure of the operation — direct sale, holding company, earn-out, reinvestment — radically changes the net result. It must be designed in advance, because many optimisations require waiting periods.

The timing

A well-conducted exit is measured in years, not months: preparing the company, putting numbers and contracts in order, identifying buyers, conducting due diligence, negotiating and closing. Those who move only when an offer arrives start at a disadvantage.

In summary

The exit is the phase in which the value built over years of work is harvested: it deserves the same care as the founding. Choosing the right option, making the company independent of the founder, putting numbers and legal situations in order and designing the tax structure in advance makes the difference between a value-realising exit and a fire sale.

How we help you

SIH ONE’s Capital division prepares and coordinates founders’ exits: valuation, preparing the company for due diligence, searching for buyers, tax structure and orchestration of the entire operation. Talk to the team.