Liquidity Options for Privately Held Businesses

Liquidity Alternatives

Liquidity Options for Privately Held Businesses


In my previous article, Preparing for a liquidity event, I discussed how to prepare a business for a liquidity event. Proper preparation ensures a business is well‑positioned when unexpected events result in a need for liquidity.

What is a liquidity event?

A liquidity event is a transaction through which corporations and/or their controlling shareholders gain financial liquidity as a result of a sale or recapitalization of a business.

In order to ensure optimal outcomes for all shareholders and allow them to best meet their objectives it is recommended business owners consider a number of different types of liquidity alternatives.

Shareholder motivations for liquidity

The desire for a liquidity event may be motivated by one or more of the following personal and business circumstances:

  • Business owners may wish to “take some money off the table” and reduce personal financial risk by diversifying their assets.
  • Business owners may look to take a step back from the business to pursue other interests or retire.
  • Unexpected personal circumstances, such as a death, deteriorating health or divorce, may require the division of family assets.
  • A shareholder may elect to leave the business due to a challenging interpersonal situation resulting from mutual ownership with other individuals with different personalities.
  • Owners may encounter increased competition and margin compression, challenging future growth and possibly throwing into question the future viability of the business.

Liquidity alternatives

A liquidity event can take many forms,including:

  • Management/employee‑led buyouts: selling a company to its existing management or employees.
  • Recapitalizations and financial restructurings: infusing new capital into a company to facilitate growth and the partial buyout of existing shareholders.
  • Divestitures: selling a company to a strategic or financial investor that is external to the business.
  • Raising private capital: raising debt and/or equity capital to facilitate growth or ease liquidity constraints.

Characteristics of liquidity alternatives

Each of the transaction alternatives noted above has certain characteristics that make it a better option for addressing shareholder motivations and realizing shareholder objectives under a set of circumstances. Some of these characteristics include:

  • Confidentiality: increased ability to maintain a higher degree of confidentiality about the transaction process and the fact that existing shareholders are looking for a buyer or investor.
  • Speed: ability to be executed more rapidly due to the familiarity of the buyer/investor with the business and/or the fact that the required capital for the transaction is readily available.
  • Growth & upside: certain of the alternatives allow existing shareholders to continue to retain an interest in the company where they believe considerable future growth and upside potential exists. These alternatives involve partnering with seasoned investors with access to tangible resources, experience and knowledge not available to the existing management and shareholders.
  • Price: by their nature, some of the alternatives will be directed to a broader pool of potential buyers/investors and a more formal auction process will likely be undertaken. Broad auction processes that target strategic investors are typically considered optimal from the perspective of price maximization.
  • Use of proceeds: by design, certain of the alternatives will result in existing ownership being diluted, taking chips off the table and diversifying their personal assets. Other alternatives do not necessarily (immediately) allow for these options.
  • Ongoing ownership and management: certain of the alternatives result in existing ownership severing the relationship with the company immediately while others result in continued ownership and potentially holding management roles going forward. One needs to contemplate the various alternatives taking into consideration the shareholders’ comfort level with having additional/new stakeholders at the table.


We often find that shareholders desiring a liquidity event are fixated on a particular form of transaction. Given the range of transaction alternatives available, it behooves business owners to carefully consider all options so they can identify the type of transaction that allows them to best meet their personal and business objectives.

Informed decisions, optimized value

For more information:

Nathan Treitel
Managing Director – Valuation and Transaction Advisory

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