WK 9: Harvesting

Question 1

Define harvesting

Answer 1

Reaping the reward for the effort of running a business.

Question 2

3 Elements when planning an exit?

Answer 2

Strategic environment: Business must be appealing in terms of products, market and management for buyers.

Entrepreneurial aspirations: Personal goals of entrepreneur with their decision.

Financial situation: Status of business financially.

Question 3

What are the 5 types of sale?

Answer 3

1) Sale to a financial buyer
2) Sale to a strategic buyer
3) Manager Buy-Out
4) Strategic Alliance/Merger
5) IPO

Question 4

Define sale to a financial buyer

Answer 4

Financial buyer can be a competitor, or business wishing to achieve vertical integration. They usually look toward cash-generating; therefore business identity can be lost.

Question 5

Define sale to a strategic buyer

Answer 5

Strategic buyer purchases business to form larger strategy. Usually most attractive price.

Question 6

Define Manager buy-out, + 3 factors to be considered

Answer 6

• Selling business to managers or existing partners.
• Usually entails high leverage, so new owners must stay focused.

Three factors:

1) Ability to borrow significant sums against business assets.
2) Ability to retain strong management team.
3) Potential for investment to grow.

Question 7

Define strategic alliance/merger

Answer 7

Alliance: mostly remain independent, though element of interdependence.

Merger: New entity is formed by combining entities.

Question 8

Define IPO

Answer 8

• Shares made available through listing on public stock exchange.
• Loss of privacy, loss of original vision, large cost of going public.