The partial or full 

disposal of a business
unit through sale, exchange, closure or
bankruptcy. It may result from a
management decision to no longer operate
a business unit because it is not part of a
core competency..
  Poor financial performance
 Bankruptcy

 Structural decline

 Privatization

 Decreased activity

 New technology

 Reorganization and reengineering

Reasons for Exiting

Your Exit Strategy Needs
To Be Reviewed

 Identify Your Retirement Goals &

Objectives
 Evaluate Succession Planning Options
 Coordinate Your Personal & Business
Planning Needs
Don’t Want to Exit but
reduce the operations ?

Downsizing is the option

What is Downsizing?

A downsizing strategy reduces the scale (size)

and scope of a business to improve its
financial performance.
Downsizing = an organisational strategy that
generally involves reducing the size of the
workforce
Purposes & Risk of Downsizing

PURPOSE = Improve financial performance through

 Cost-cutting, while also achieving long-term effectiveness,

efficiency, productivity, competitiveness

DILEMMA of Downsizing
 Short term cost cutting may lead to negative psychological

reactions that HARM the long term aim of increased

competitiveness.
Modes Of Downsizing
 In a spin-off, the parent company (ParentCo) distributes
to its existing shareholders new shares in a subsidiary,
thereby creating a separate legal entity with its own
management team and board of directors.
 The distribution is conducted pro-rata, such that each
existing shareholder receives stock of the subsidiary in
proportion to the amount of parent company stock
already held.
 No cash changes hands, and the shareholders of the
original parent company become the shareholders of
the newly spun company (SpinCo).
Split off
 In a split-off, the parent company offers its
shareholders the opportunity to exchange their
ParentCo shares for new shares of a subsidiary
(SplitCo). This tender offer often includes a
premium to encourage existing ParentCo
shareholders to accept the offer.
 For example, ParentCo might offer its
shareholders $11.00 worth of SplitCo stock in
exchange for $10.00 of ParentCo stock (a 10%
premium).

 Split-offs often occur when the parent company

wishes to draw a greater distinction between itself
and the split-off business.
  Equity carve-out, also known as a split-off IPO or
a partial spin-off, is a type of corporate reorganization,
in which a company creates a new subsidiary and
subsequently IPOs it, while retaining management
control.

 Only part of the shares are offered to the public, so the

parent company retains an equity stake in the
subsidiary.

 Typically, up to 20% of subsidiary shares is offered to

the public.

Equity Carve Outs

TYPE OF SPIN-
DESCRIPTION EXAMPLES
OFF

Parent firm distributes shares of the

•Cadbury Schweppes / Dr. Pepper
Spin-Off spun-off subsidiary to parent
•Time Warner / AOL
shareholders

Parent firm sells a portion or all shares •Bristol-Myers / Mead Johnson

Carve-Out of subsidiary through an IPO in the Nutrition
equity market •Citigroup / Primerica

Parent company's shareholders are

•Bristol-Myers / Mead Johnson
offered shares of a subsidiary in
Split-Off Nutrition
exchange for the parents' shares
•Sara Lee / Coach
(exchange offer)
 1).PLANNED EXIT
2).FORCEFUL RETIREMENT
3).TRADE SALE
4). SELLING AN OPERATION TO
EMPLOYEES
5).SALE OF SUBSIDIARY

Modes of Exiting
  In entrepreneurship and strategic management
an exit strategy , exit plan or strategic
withdrawal, is a way to transition one’s
ownership of a company or the operation of
some part of the company.

Planned Exit
 STEPS
Establish a goal

Personal Learn and

readiness test. Choose best
option.

EXIT
Create and preserve business
value.

Minimize taxes.
 Financial Mental
Readiness Readiness.

Personal Readiness Test

Types of Planned
exit
1. Lifestyle Company
PROS
1. Financial Freedom

CONS
2. Negative Tax Factor
3. Sources of funds will finish soon,
without proper planning.
 2. ACQUISITION

PROS
1. Enjoy optimum strategic value.
2. Multiple bidders

CONS
3. Complex.
4. Difficult when different cultures and systems
clash in the merged company.
 PROS
1. Less due diligence required.
2. Emotional satisfaction.

CONS
3. Selling to family can tear the company apart with
jealousies and promotions that put emotion way
ahead of business needs.

3. Transition Ownership to Emotional

Partner.
4. INITIAL PUBLIC
OFFERING

PROS
1. Highest value.
2. Covers of the magazines.

CONS
3. Long processing time.
4. High Cost involved.
5. Highly restricted with regulations.
PROS
1. Easy and natural.
2. No negotiation involved.
3. No worry about transfer and
control.

CONS
4. Undervaluation of assets.
5. End of reputation and
business relationships.

5.LIQUIDATION
  The involuntary ending of one's career because
of a layoff. Forced retirement can have a
significant negative effect on workers'
retirement plans if they are unable to earn
several years' worth of income that they
anticipated and/or they are forced to take
Social Security benefits early.

Forced Retirement
CONS

1. Firm’s reputation PROS

suffers.
2. Employee’s 1. Cost-cutting.
motivation disrupts.
3. Violation of
psychological
contracts.
4. “SURVIVORS”
experience more
stress.
 • A trade sale is a common way of exit to a trade buyer. This
allows the management to withdraw from the business and
may open up the prospect of collaboration on larger
projects.

• The trade sale is in which the private equity invest or sells

all of its shares held in a company to a trade buyer, i.e. a
third party often operating in the same industry as the
company itself.

• It normally entails the disposal of

company's shares or assets and even liabilities, in whole or in
part.

Trade Sale
  A trade sale opens the sale process to a wider
range of potential buyers; this route has several
significant advantages:  
 It provides a strategy to exit where there is no
internal succession route
 By selling to a same sector trade buyer, a better
strategic fit is more likely - and could enable a
deal to be completed quicker
 It opens up a greater choice of purchaser and
potential sale return

The benefit of a trade sale

  The advantage of selling a business or division to employees is
that it generates capital for the parent company and places the
ultimate responsibility for achieving profitability on the
employees.

 For example, B.F. Goodrich Co. was failing to meet its profit goals
in its tire and appliance stores. It felt that it could get a better
return on its resources by investing them in its profitable
chemical businesses. So, Goodrich sold, or franchised, many of
the stores to the managers and employees who ran them, and it
invested the capital in its chemical operations to enhance
profitability.

 An interesting result of the exit process was that the profitability

of the stores increased because managers suddenly had a
personal stake in the success of the business.

Selling An Operation To Employees

  Reduction of the book values of investments in subsidiaries is
usually accomplished by selling the shares of the subsidiary
company.

 The preferred objective is to sell 100 percent of the shares in order

to avoid any residual liability and reduce the complexity of
subsidiary shareholdings management.

 Depending on the size of the planned transaction, market demand

and other particularities, an initial public offering (IPO) with a
broad spread of shares may also be a viable alternative.

 Both sale strategies are highly complex projects, costly in terms of

money and time

Sale of subsidiary
companies
  The transaction may be structured to provide for the
book value to be dissolved after the sale against
disclosure of the sales proceeds. Depending on the amount
of transaction costs incurred, a profit or a loss may be
reported from the sale of the investment.

 The sale may also take the form of a loss portfolio

transfer (LPT), in which the loss portfolio is offered for
sale but not the company shell with all employees,
infrastructure, licenses, etc.

Sale of subsidiary
companies
WHAT IS THE OPTIMAL
STRATEGY ?
Whatever suits your and your
firm’s needs