Sale of Privately Held Business

A longtime C.H. Dean client is selling his privately held business to a competitor in the next 24 months. He is seeking guidance for coordinating the sale as well as family and legacy planning once the sale is consummated. The client and his wife are in their mid-50s and have three children in their late teens. Dean manages all of the couple’s investments, which are valued at $3 million. Dean also manages the retirement plan for the client’s business.

The client has three main concerns regarding the sale:

• Firm valuation, which the client estimated at $25 -$30 million
• Structuring a potential sale to minimize taxes
• Ensuring meaningful employment for the firm’s 10 key employees post-sale and guaranteeing ongoing employment for eight other longtime employees

The couple also has three major concerns related to family and legacy planning:

• How to enjoy their wealth without their children developing a sense of entitlement
• How to protect their wealth for future generations
• How to design and implement a program for long-term charitable giving

During the pre-sale planning, Dean took these steps to support the client:

• Dean recommended two firms to conduct an independent valuation of the firm and participated in the meetings when valuation findings were presented.
• Working with the firm’s tax attorney and internal tax team, Dean developed a series of strategies for structuring the sale and recommended contingencies to include in the sale negotiations to protect employees.

Dean also participated in critical calls with the independent mergers and acquisitions firm representing the client for the sale and offered the client guidance throughout the sales process.

During the time leading up to the sale, Dean began a series of in-depth conversations with the client on wealth planning:

• Income and lifestyle needs for the family, and their vision for their children
• An investment strategy to conservatively grow assets
• Estate planning, including strategies for ultimate wealth transition
• Using various types of trusts to protect assets and control funds distributed to children as well as the various options for trustees (individual, corporate, etc.)
• The role of donor-advised funds and other giving vehicles

The sale resulted in after-tax proceeds of over $20 million.

The owner agreed to stay on as a part-time consultant for 12 months after the close and the 10 key employees were given 24-month employment contracts. The remaining eight employees were given guarantees of a comparable job for at least 24 months or a two-year severance package if their job was eliminated.

The pre-sale conversations about the family legacy transitioned into a series of important planning outcomes for the family:

• Implementation of an investment program that includes customized allocations for specific goals
• Updated estate plan for the family
• Implementation of individual irrevocable trusts for each child, with Dean serving as investment manager for each of the trusts and the parents serving as trustees
• Choosing a corporate trustee
• Establishment of a donor-advised fund for current and future giving, with its investments managed by Dean

Dean also organized and ran a series of family meetings to educate the children about the trust. In these conversations, the firm facilitated discussions with the couple and children about the parents’ expectations for the children to uphold the family’s personal values.