Given the heady merger and acquisition action happening, particularly in the residential roofing contracting space, I thought a short, "Cliffs Notes"-type article would be helpful for firm principals considering their options. It is, by design, an at-a-glance information sheet; let’s dive in.

Your Roofing Exit:

  • You will exit your company, intentionally or unintentionally.  
  • Most owners have 75%-plus of their wealth tied up in their company.
  • Traditionally, family, managers, or employees comprise the lion’s share of firm buyers when a principal exits.
  • Since COVID, the marketplace has witnessed a significant increase in private equity interest. 
  • Have a plan that considers the following: the sale meets your company goals, leaves a "positive" legacy, minimizes or eliminates tax liabilities, and protects your financial future.

  • Exit opportunities increase in value if your company is larger, has strong management with depth, established operational systems, and a pattern of profitable performance.
  • The exit plan summary: “How to cash out, eliminate taxes, and retire comfortably.”

The Options

Owners essentially have four sale options, each with a different value, tax obligation, and compromises.

  • External Sale:

    • Sell to a competitor. 
    • Selling to a consolidator. 
    • Buyers have a strong Industry knowledge. 
    • Owners stay short-term for a one-to-two-year "transition" — with the significant payment frontloaded at the execution of the agreement and the balance to complete held as a retention based on expected performance.

      • Some roofing consolidators want a portion invested in the company and to stay for a longer period.
    • Owners lose financial/strategic control upon the sale.
    • Synergy Value with the most value, but with higher taxes. 
  • Sell to Private Equity [PE]

    • Selling to investors.
    • PE needs your management skills and for owners to stay.
    • Owners will remain an investor as PE usually purchases 75%-plus, and you will hold the remaining value for the next sale.
    • The strategy is to grow the company and sell later at a much higher profit.
    • Lose financial/strategic control at the sale but continue operational influence.
    • Investment value with high value but higher taxes.
  • Internal Sale:

    • Management buy out.
    • Selling to managers with intimate knowledge of the company and risks.
    • Key liability is the risk of not being paid based on company performance.
    • The payment to the owner is from the company profits.
    • Investment value (structured).
    • Provides seller flexibility, tax efficiency, and control.
  • Employee Stock Ownership Plan (ESOP):

    • Selling to employees.
    • Provides seller flexibility and control.
    • ESOPs offer the best tax efficiency of all exits.
    • Payout to the owner from a structured loan and payment from company profits.

    • Fair market value.
    • Expensive administrative costs and burdens.

Key Questions

You only have one chance to get the exit right.

  1. What are my personal, business, and financial goals?
  2. When do I want to retire independent of my business?
  3. How much money do I need for my business to retire?
  4. What is the value of my business (depending on the type of sale) and after-tax value? Is my company sale ready? 
  5. How much money do I need from the “after-tax” sale to live independently from the business and into retirement?
  6. What are my various tax strategies to reduce and possibly eliminate taxes on internal and external sales?
  7. Have I implemented a succession plan for the company to perform without my presence?

  8. Do I have tax savings investment strategies to pre-save for retirement and to make me less dependent on the sale price?
  9. Do I have asset protection plans to protect the company from predators and creditors?

The information provided is not intended to be legal, accounting, insurance, or tax advice. Beacon is a process consultant that provides written plans, consulting, and support programs to private owners for succession and exiting their businesses.