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Deloitte's Survey Highlights Future Sale Trends Among Private Companies

In a recent survey conducted by Deloitte Private, findings reveal that a significant number of private company leaders are considering divestitures as a strategic route towards sustaining their business and fostering growth. Nearly 57% of respondents from organizations planning future transfers or sales intend to engage in transactions within the next one to three years, with business continuity as the primary goal, as expressed by 40% of leaders surveyed.

This strategic move comes as a response to evolving market dynamics and internal challenges. The survey, named "Private Company Outlook Market Readiness," gathered the insights of 100 private company leaders to explore their readiness and objectives regarding potential sales or transfers.

Key Motivations for Sales

While the primary motivation remains business continuity, other factors also play a crucial role in driving these companies towards divestitures. Notably, scaling for growth through partnerships is valued by 45% of respondents, followed closely by the need for financial sponsors who can support future expansion, cited by 37% of leaders. This indicates a growing trend among private firms to leverage external collaborations as a means to enhance their market presence and operational capacity.

Timing and Conditions for Transactions

The timing of these intended transactions is intrinsically linked to specific external conditions and the companies' internal readiness. Approximately 50% of participants emphasized that market conditions will dictate when they proceed with a sale, while 43% pointed to the organizational preparedness as a critical factor. Despite 63% of respondents confirming they have recently conducted valuations, only half reported being adequately prepared for the due diligence process, which often necessitates the involvement of third-party advisers.

Tax Implications at the Forefront

Tax implications are another pivotal consideration for private companies contemplating going to market. Nearly 90% of surveyed leaders regard recognized gains (88%) and transfer taxes (87%) as major concerns. Furthermore, two-thirds noted historical tax issues as critical factors in their decision-making processes. Tax planning considerations, such as leveraging existing losses (43%) and exploring qualified opportunity zones (36%), are prominent among those planning to sell.

Expected Compensation Structures

When discussing the anticipated compensation structures post-sale, over 43% of respondents expressed they expect a cash plus earnout arrangement. This expectation differs considerably across company sizes, with leaders from larger companies (annual revenues of $500 million or more) being over three times more likely to expect proceeds that include both a sale and a rollover compared to smaller entities.

Post-Sale Engagement Plans

Plans for continued involvement post-sale vary significantly among companies. Interestingly, 50% of respondents indicated that their organization's founder or owner intends to remain engaged by joining the board after the transfer or sale. In contrast, leaders from smaller firms (under $500 million in revenue) are nearly three times more inclined to expect the founder to completely exit post-sale compared to those from larger organizations.

To manage post-sale financials effectively, 48% of respondents maintain trusts with ownership interests aimed at facilitating estate planning, while 37% are inclined to roll equity into new ventures, contingent upon regulatory allowances.

Conclusion

Wolfe Tone, U.S. Deloitte Private leader, remarked on the careful consideration these private company leaders undertake as they navigate the prospect of sales and transitions. By closely evaluating market conditions and internal readiness alongside tax implications, they aim to ensure stability, foster growth, and create enduring value for stakeholders. As private companies increasingly regard transactions as pathways to continuity and expansion, the findings of this survey shed light on the evolving landscape of strategic business decisions in this sector.