Navigating a business sale and embracing the transition

PRIVATE equity buyouts and exit activity are rebounding in Asia-Pacific. The largest to date in South-east Asia was the sale of an 86 per cent stake in health and wellness brand Eu Yan Sang for S$687 million by its owners which include members of the founding family. Business owners therefore should recognise that making a success of the sale of a business demands careful consideration and strategic planning.

This significant milestone in one’s wealth journey, often referred to as a liquidity event, liberates capital tied up in a business, creates new opportunities with newfound liquid assets, and represents the transition from one way of life to another. That is the alchemy of the deal.

However, the decision to sell can be overwhelming, stirring conflicting emotions and raising questions about identities, life goals, the people that matter most, and the meaning of legacy.

Before the sale: define the destination and plan the route

Selling a business is a chance to crystallise the value created over years of hard work. However, true value can only be realised when there is a clear purpose.

Before embarking on the journey of selling a business, business owners must reflect on what matters most to them. This includes considering the perspectives of family members, especially the rising generation, and their intended roles within the business.

By understanding the post-exit aims, business owners can steer the sale towards the right outcome, ensuring the proper allocation of liquid assets, and effective contingency planning for future investments.

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Working with trusted advisers can help owners define and refine objectives.

These advisers can help navigate complex considerations, such as tax implications, wealth structuring and management. They simplify complexities, translate financial jargon, and provide practical and emotional support throughout the sale process.

Planning the route

The decision to sell can arise from various circumstances, such as inheritance, a change in family situation, or an irresistible offer. For some, it might just be the right time. Regardless of the reason, business owners need to be clear about their desired outcomes as different forms of exit offer different results.

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A family business owner might prioritise the sustainability of the firm and the security of employees. A sale can affect many people, and there can be many agendas, interests and hopes at play.

For example, selling to private equity firms allows owners to retain a stake in the business and benefit from the firm’s expertise in growing businesses. Selling to a strategic buyer may provide maximum cash upfront, while taking the company public through an initial public offering (IPO) exposes the transaction to market conditions and regulatory requirements.

South-east Asia’s IPO market experienced a significant decline in the first six months of 2024, continuing the downward trend that started in the second half of 2022. However, according to a Deloitte report, there are signs of conditions improving, such as the planned US$509 million IPO of Malaysia’s top mini-market chain retailer 99 Speed Mart Retail. It was founded by entrepreneur Lee Thiam Wah in 1987 as a traditional sundry store, and is slated to be South-east Asia’s largest IPO in over a year.

At the same time, the artificial intelligence (AI) market in Singapore is set for significant growth. With more than 1,100 AI startups at end-2023, an Ignition AI Accelerator was also launched in May this year, a new global AI startup accelerator in South-east Asia supported by the Singapore government in collaboration with Nvidia, with a focus on enhancing AI value discovery. It is expected to create a vibrant ecosystem for AI startups and push the boundaries of what AI is capable of.

A wave of AI IPOs is expected in the coming years with the emergence of a new generation of tech billionaires.

After the sale: define the wealth architecture

Upon completing a sale, former business owners enter a new reality as investors. They need to adopt an investor’s mindset and consider their involvement in the future management of their wealth. Coordinating with trusted advisers and creating a family and investment governance framework can help align thinking and simplify decision-making.

Wealth planning considerations arise, including the potential to explore new geographies, and the potential move to a jurisdiction that better suits the investor’s aims.

There are various options for managing the unlocked wealth. Establishing a family office can provide a comprehensive solution to investment decisions, integrated tax planning, insurance and tailored solutions, but it comes with significant costs and responsibilities.

Alternatively, an outsourced investment committee can be formed to steer the strategic direction of the portfolio, while private funds offer economies of scale and strong portfolio hedging.

Activating unlocked wealth

Former owners looking to stay actively involved in business can invest their cash in new ventures, or buy direct stakes in companies. They can also use their newfound wealth and time to drive positive change through impact-driven investments, or entrepreneurial philanthropy.

Seeking professional advice is key to identifying the most effective way of achieving these goals and involving family members. Guidance could come in the form of simple advisory sessions, more in-depth workshops, or simply a second opinion.

Activating wealth through investing involves establishing the appropriate investment governance and structuring the portfolio.

An experienced wealth manager can guide the investor in creating a clear asset allocation strategy based on risk tolerance, time horizon and anticipated spending (liquidity) needs. Trusts and educational accounts can also be created to pass on resources to the next generation, with the aim of protecting and growing wealth over generations.

The writer is CEO, Pictet Wealth Management Asia