Arun Kakar talks to the head of JP Morgan’s private bank about what to watch out for when stepping out of a business
The ‘great wealth transfer’ – in which a total of £1.2 trillion will transition between generations – is set to take place over the next 30 years. As baby boomers edge closer to retirement, wealth managers must know how best to help them navigate a successful business exit.
A business exit – mainly undertaken through an IPO, M&A or direct sale – is one way to bring a business journey to an end. It’s a long, complex process, which is always deeply personal, explains Oliver Gregson, JP Morgan Private Bank Head of UK & Ireland.
Speaking exclusively to Spear’s, he adds: ‘It’s more the emotional aspects than it is the raw financials that become really important. What we’ve experienced is that yes, people focus on the exit value – monetary amount, things like that – but what becomes clear as you get into the process is that they have secondary motives that are almost as important, if not more so.’
According to Gregson, these motives tend to be issues rooted in the most fundamental aspect of a business exit: starting, building and eventually leaving behind one’s life work. It’s a process that can involve difficult decisions like the preservation of the businesses culture, its role in a community as well as a transformative change in the lifestyles not just of the founder, but the people in their orbit. But it’s a procedure that is also rewarding and liberating, with today’s business climate relatively favourable towards the prospect.
‘Many foreign investors have seen the UK, and the fall in Sterling as very attractive,’ says Gregson. That has really been the case for a number of years now, and if Sterling falls further, that may continue. ‘Whether in the growing global leadership of London’s Silicon roundabout of tech start-ups, the over £80bn of family wealth powering the sector or the wider economic contribution created by UK business; their impact across society is subject to renewed attention as Britain proclaims itself open for business.
But with the uncertain fate of Britain’s role in the world after Brexit, is now a good time to take risks with leaving the business?
This combined with a number of factors intrinsic to the UK such as London’s reputation as an international capital of culture and quality of life increase the chances of a good exit deal at an ideal time. With growth in the general business environment slowing in recent months, Gregson also points to a potential for a growing M&A market to ‘shape the importance’ of the view ahead, too.
‘If you think about where we’ve come from in what has probably been one of the most hated and underappreciated bull market’s we’ve ever seen,’ he says. ‘It seems like that bull market has ended, but [almost] ten years since the lows of March 2009, we’ve come a long way.’
Undertaking a business exit can take over two years and incorporates several moving parts. As well as setting goals for short to long-term, there’s a litany of factors that need to be considered, from tax exposure to liquidity needs. In the new whitepaper from JP Morgan Private Bank, Thinking Ahead, among the presale checklist, it notes that most business owners are so busy staying focused on running their organisation that exit preparations can ‘take a back seat’.
One of the issues mentioned in the paper is the impact of inflation. After the sudden influx of cash that (hopefully) arrives after exit, it is important to preserve one’s capital so that it doesn’t diminish, given the higher rates of personal inflation for HNWs. The transference of being heavily invested in one’s company, implementation of the plan immediately after the exit is crucial.
Another is to need to hedge currency risk, particularly for the clients that Gregson says ‘think in Sterling’. The market has begun to price in the shudders induced by Brexit, but Gregson notes that the range of scenarios regarding Brexit ‘still has room to go’.
He adds: ‘We’ll look at the specifics whether that’s about the concentrated single stock or about the currency.
‘There are a whole variety of different solutions you can put in place to take the risk out of the equation completely, or indeed lock in a certain rate when you know once the deal has been signed.
‘Again, there are a whole variety of different solutions you can put in play really to reduce or mitigate that kind of risk.’
Exiting a business provides new opportunities, most notably within philanthropy, which Gregson says is ‘way more than just cutting the cheque’, and in most cases involves a client becoming intensely involved in a cause close to their heart.
‘We’ll spend quite a bit of time trying to talk about [a client’s] causes,’ says Gregson of the philanthropic approach. ‘It can be a really great bonding or unifying way of bringing family members together and giving them a purpose afterwards.’
Once an exit is complete, the personal impact can be monumental. An old way of life comes to an end, and a new one begins – usually with the cushion of a sizeable amount of extra capital. ‘The mistake, [that I’ve seen too many entrepreneurs do] because they are serial entrepreneurs, is rush into the next deal. It’s the worst thing to do, so a lot of our advice is to stop, pause, and reflect: just enjoy seeing that number in your bank account.’
Arun Kakar writes for Spear’s