With the current up-tick in the economy and the demographic realities of baby boomer business owner transitions, estate planners have a client base that may be seeking to monetize their investment in their closely held businesses. Many business owners immediately assume that means an outright sale. However, there are other liquidity options to consider. This session, presented at the recent 2015 Heckerling Institute on Estate Planning, covered various liquidity options including dividend policy, partial sales to insiders, employee stock ownership plans, private equity investors, as well as third party sales.

1. Unlocking Private
Company Wealth
Advising Your Clients in Monetizing
Their Illiquid Wealth
Z. Christopher Mercer, ASA, CFA, ABAR
Timothy R. Lee, ASA
Nicholas J. Heinz, ASA
Mercer Capital | www.mercercapital.com

2. Insights
1. Now Is a Good Time to Talk to Your
Clients
2. Ownership Always Matters
3. Questions to Ask Your Clients
4. Total Wealth Management
5. Liquidity Strategies
1

3. Now Is a Good
Time to Talk to
Your Clients

4. Baby boomers and their businesses
§ There are 76 million baby boomers in the US or
approximately 25% of the US population
§ 66% of all businesses with employees, or nearly 4 million
companies, are owned by baby boomers
§ The oldest of the baby boomer generation started turning
65 on January 1, 2011, at a rate of 10,000 people a day
— a trend that will last for the next 19 years

5. Stock market indices
4
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
S&P 500 Dow Jones NASDAQSource: S&P Capital IQ
Mar 2009
DJIA 6547
Dec 2014
DJIA 17823
18.8% CAG
from Low Point
(+272%)

6. Public stock market valuation
5
0x
2x
4x
6x
8x
10x
12x
14x
16x
18x
S&P 500 Dow Jones NASDAQSource: S&P Capital IQ
Valuations Trending
Higher! / Peaking?

7. Private equity M&A activity
6
2012
All&Transactions!(1) Ttl&'12!(2)
Deal!Volume 232
Total&Enterprise&Value&÷&EBITDA 6.2x
Senior!Debt!÷!EBITDA 2.4x
Sub/Mez!Debt!÷!EBITDA!(3) 1.0x
Total&Debt&÷&EBITDA 3.4x
Implied!Equity!÷!EBITDA!(3) 2.8x
Implied!Equity!as!a!%!of!Capital!(3) 44.5%
Implied!Ttl!Debt!as!a!%!of!Capital!(3) 55.5%
Notes
(1)!Information!provided!by!GF!Data®.!!This!report!may!not!be!used!in!work!product!or!republished!in!any!format!without!the!written
!!!!!!permission!of!GF!Data®!and!Mercer!Capital.!!GF!Data®!data!summary:!deals!from!193!of!223!contributing!P/E!firms;
!!!!!!deal!valuations!ranging!from!3x!to!12x;!Deal!values!$10[250mm
(2)!Per!Mercer!Capital;!volume[weighted!quarterly!multiples!for!each!respective!year.!!2012!data!per!GF!Data!Aug!2014!report.
(3)!Derived!by!Mercer!Capital
2013 '12&&&'13 2014
Ttl&'13!(2) (2) Q1 Q2 Q3 Ttl&'14!(2)
145 377 33 44 36 113
6.4x 6.3x 6.2x 6.4x 6.7x 6.4x
2.5x 2.5x 2.3x 2.9x 2.6x 2.6x
0.9x 1.0x 1.2x 0.9x 1.0x 1.0x
3.4x 3.4x 3.5x 3.8x 3.6x 3.6x
3.0x 2.9x 2.7x 2.6x 3.1x 2.8x
47.1% 45.5% 43.5% 40.6% 46.3% 43.3%
52.9% 54.5% 56.5% 59.4% 53.7% 56.7%
(1)!Information!provided!by!GF!Data®.!!This!report!may!not!be!used!in!work!product!or!republished!in!any!format!without!the!written
!!!!!!permission!of!GF!Data®!and!Mercer!Capital.!!GF!Data®!data!summary:!deals!from!193!of!223!contributing!P/E!firms;
!!!!!!deal!valuations!ranging!from!3x!to!12x;!Deal!values!$10[250mm
(2)!Per!Mercer!Capital;!volume[weighted!quarterly!multiples!for!each!respective!year.!!2012!data!per!GF!Data!Aug!2014!report.

8. Private equity M&A activity
7
5.0x
5.5x
6.0x
6.5x
7.0x
2003-09 2010 2011 2012 2013 YTD Q3 - '14
Avg EBITDA Multiple
Note: 2003-09 Annual Average of 7 Yrs; 2014 YTD Annualized (lacks typical Q4 volume push)
Information provided by GF Data®. This report may not be used in work product or
republished in any format without the written permission of GF Data® and Mercer Capital.

9. Ownership
Always
Matters

10. Ownership is not a static concept…
ESOP / Management
Outside Investor(s)
Sales to Insiders / Relatives
Combination Merger / Cash Out
Going Public
Gifting Programs
Buy-Sell Agreements
Death
Divorce
Forced Restructuring
Shareholder Disputes
Buy-Sell Agreements
Sale of Business
Stock Exchange w/ Public Co.
Stock Cash Sale to Public Co.
Installment Sale
ESOP / Management Buyout
Liquidation
Buy-Sell Agreements
Death
Divorce
Forced Restructuring
Bankruptcy
Shareholder Disputes
Buy-Sell Agreements
Passive
Events
Active
Events
Partial Sale / Transfer Total Sale / Transfer
9

11. Questions to Ask
Your Clients

12. Questions to
Ask Your
Clients
§ Who should own the company? In 3
years? In 5 years?
§ Family? Management? Financial buyer?
Strategic buyer?
§ Is your business working for you?
§ What if you had to sell tomorrow?
§ What could affect your ownership? – and
are you ready?
§ What do you believe you need to begin
doing now to accomplish your goals?
11

13. Total Wealth
Management

14. Asset allocation of a business owner with
$5 million of liquid assets
13

15. The reality if that business owner has
a $20 million closely held business
14

16. Why should you care?
Are your clients
working to
manage ALL
their wealth, both
liquid and
pre-liquid?
Baby boomers
are transitioning
their wealth and
seeking to begin
the next phase of
their lives
15

17. The One
Percent
Solution
§ Allocate a percentage of value for
the illiquid assets under
management to provide the budget
necessary to manage wealth
§ Liquid Assets
- 1% of assets under management, +/-,
depending on asset category
§ Pre-Liquid Assets
- 0.5% to 2% of value (AUM) for
businesses depending on value
16

18. How You Are
Involved In the
Transaction
Process
§ Annual legal reviews
§ Estate planning
§ Buy-sell agreement drafting or review
§ Attest services
§ Life insurance funding
§ Wealth manager compensation
§ Annual valuations and monitoring
value growth
§ Buy-sell agreement pricing (per annual
valuations)
§ Financial planning
§ “Make ready” consulting projects
17

19. Liquidity
Strategies

20. HOLDING ON SELLING IN
(Family, Management)
SELLING OUT
(Financial buyer, Strategic buyer)
Regular dividends Management buy-in Private equity
Special dividends ESOP
Third party sale
(financial buyer)
Share redemptions Generational Transfers
Third party sale
(strategic buyer)
Leveraged dividend recap Trust Ownership
Leveraged stock recap
(buy-back)

21. Concluding
Thoughts

22. Recap of information covered
1. Now Is a Good Time to Talk to Your Clients
2. Ownership Always Matters
3. Questions to Ask Your Clients
4. Total Wealth Management
5. Liquidity Strategies
21

23. Resources
Visit Mercer Capital’s website
to subscribe to complimentary newsletters and helpful industry publications,
as well as review our library of articles.
MercerCapital.com
22
IN THIS ISSUE
Fairness Opinions
Evaluating a Buyer’s Shares from the
Seller’s Perspective
Mercer Capital News
Books of Interest to Estate Planners
Industry Events
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24. Unlocking Private
Company Wealth
Advising Your Clients in Monetizing
Their Illiquid Wealth
Z. Christopher Mercer, ASA, CFA, ABAR
mercerc@mercercapital.com
Timothy R. Lee, ASA
leet@mercercapital.com
Nicholas J. Heinz, ASA
heinzn@mercercapital.com
MERCER CAPITAL
901.685.2120
www.mercercapital.com