Exit Strategy

(I apologize - the original text was cut off in transmission in first emailing)

I’ve been around long enough to recall several career ‘exits’: Woody Hayes punched a Clemson player, Bobby Knight threw a chair onto the court and more seriously Martin Luther King and Bobby Kennedy exited tragically. For all of the owners of lighting manufacturers in the US (as well as every business owner in the world), there must be a time to address your exit. That requires serious planning, including a will and estate planning but also consideration of the employees that have worked for you and made you a successful businessperson. We all face an exit, desired or otherwise. Planned or unplanned.

There are only four defined means of exiting your ownership of your company:

1.      Sell the company internally (i.e. ESOP)

2.      Pass the company on to family

3.      Sell the company to an outside buyer; whether an investment firm or strategic manufacturer

4.      Turn the lock in the key and walk away

The lighting industry is characterized by being highly fragmented; with over 1000 lighting manufacturers and thousands of related ancillary companies (LEDs, drivers, louvers, lenses, controls, etc.). I have personally documented a list of 25 individual channels for the industry. I define a channel as a market that can support a dedicated product mix and a dedicated sales/marketing force to serve that industry. A few of those examples;

·        Commercial/industrial. The lighting agency/specification market

·        Big Box: Selling your products to retailers for their resale.

·        DOT: Selling your products to serve the highway and street lighting marketplace.

Most of the largest manufacturers have dedicated sales teams and product management people to penetrate multiple unique markets; each of which have unique dedicated buying influences to engage and be successful.

Your own business has a dedicated channel structure; even if you don’t think that it is that unique of a market emphasis. The challenge with selling a lighting company is that channel plays a huge role in defining the likelihood of selling and the valuation. If you choose to sell internally (family or employee owned) the transition is relatively smooth. The company has been successful, the team understands the products, the channel to their market and operations is similarly aligned. In short... it works, unless your family or employee roster has limited leadership skills. Despite the outside perspective that a successful business can be easily maintained going forward because it’s already ‘successful’. But leadership counts. It’s easy to see the public companies struggle under new leadership: GE post Jack Welch, Apple post Steve Jobs, as examples.

And then there is the issue of selling to a new entity. Selling a lighting company to a larger lighting company has its challenges during the integration process; but most of those survive; with trial and error. Selling to an investment firm; with no lighting background is far more challenging. Most PE firms underestimate the complexity of the channel influences on lighting, including lighting reps, alternative channel buying influences and business practices (e.g. ‘overage’).

When you consider selling your company, make sure your representative understands ‘lighting’ and the embedded idiosyncrasies of defining what channel influences are requisite to a successful close and continuity of the company.

In short, exit strategy is more than a valuation and an income statement. It’s the legacy of your own success and continuity of your employees’ futures. It requires careful planning and the right partner to represent your company for sale.

I’ll be attending LightFair next week. If you’d like to introduce yourself and talk about your exit plans; please let me know. I’m there Tuesday and Wednesday. I look forward to meeting you.