Selling Your Business The Transition from Entrepreneur to Investor

Before Selling Your Business 

Pre-IPO/Presale Planning 
William R. Fleming, Director; and Daniel Carbonneau, Senior Manager;
with Richard L. Kohan, Partner, PricewaterhouseCoopers
Setting the Stage 3
Choosing a Business Structure 4
Building a Professional Service Team 10
Obtaining Financing 16
Sharing Ownership with Employees 18
Company Benefits and Policies 23
Conclusion 28
vii

ftoc_crosier.qxd 3/29/04 5:36 PM Page vii

Chapter 2
Trust and Estate Basics 29
A. Silvana Giner, Senior Partner; and Kimberly Cohen, Junior Partner,
Hale & Dorr
Basic Wealth Transfer Tools 31
Presale and Pre-IPO Planning 33
Complex Wealth Transfer and Estate Planning Issues 37
Summary 43
Chapter 3
Life Insurance: From the Basics to the Advanced 45
Herbert K. Daroff, J.D., CFP®, Baystate Financial Services
Permanent Insurance 46
Term Insurance 46
What Product Is Best? 46
Buying Term and Investing the Difference,
but in a Tax-Advantaged Manner 47
How Your Money Gets Invested 47
Expenses 49
Assessing Cash Value During Lifetime 50
Selecting the Right Premium Amount 50
Selecting the Right Premium Payer 51
Who Should Own the Insurance? 52
Who Should Be Insured? 53
Conclusion 53
Chapter 4
Negotiating the Deal 55
F. George Davitt, Partner, Testa, Hurwitz & Thibeault;
and Barry Nalebuff, Ph.D., Milton Steinbach Professor of Management,
Yale University School of Management
Sell Your Company Right 55
An Open Selling Process 56
A Closed Selling Process 56
Paying Bidders to Play 57
Right of First Refusal 58
Right of First Offer 58
An Offer You Can’t Refuse 58
Professional Help 59
Earn-Outs 59
• viii • CONTENTS
ftoc_crosier.qxd 3/29/04 5:36 PM Page viii

Earn-Ins 60
Commonly Mistaken Assumptions 60
Sale or IPO? 61
The IPO Route 61
Selling Rather Than Going Public 65
Sale for Cash or Stock 75
Conclusion 79
Part II
After Selling Your Business 81
Chapter 5
How Your Life Changes: Psychology of a Windfall 83
Marty Carter, Family Wealth Counselor, Charles D. Haines LLC; and
Charles W. Collier, Senior Philanthropic Advisor, Harvard University
Impact of the Sale on the Entrepreneur 84
Impact of Wealth on the Entire Family 86
Conclusion 95
Chapter 6
Overview of the Wealth Management Industry 97
David M. Spungen, Managing Partner, Hillview Capital Advisors
Investment Office 98
One-Stop Shop 101
Hybrid 103
How to Evaluate Wealth Management Firms 104
Chapter 7
Managing Concentrated and Restricted Stock Positions 107
David N. Elan, CFA
Restricted Stock and Equity Risk Management 107
Definitions and Examples 108
Public Policy and Rule 144 of the Securities Act of 1933 109
Registration Rights 111
Hedging and Taxation 111
Derivative Strategies 113
Nonderivative Strategies 116
Negotiating with Broker-Dealers and Finding the Best Counterparty 121
Philanthropic Strategies 122
Professional Advice 123
CONTENTS • ix •

ftoc_crosier.qxd 3/29/04 5:36 PM Page ix

Chapter 8
Asset Allocation 125
Stephen J. Cucchiaro, President and Chief Investment Officer,
Windward Investment Management
Conclusion 136
Chapter 9
Developing an Investment Policy Statement 139
Ramelle M. Hieronymus, Principal, Prime, Buchholz & Associates
Investment Objectives 140
Spending Guidelines 141
Asset Allocation 142
Rebalancing 143
Manager Selection and Evaluation 143
Limitations and Restrictions 145
Communication and Reporting 145
Summary 146
Sample Statement of Investment Objectives, Goals,
and Policy Guidelines 146
Part III
Investing for the Long Term 151
Chapter 10
Selecting Investment Managers 153
Paul Greenwood, Director of US Equity Investment Management
& Research, Russell Investment Group
Active or Passive? 155
Four Ps 159
People and Organization 159
Portfolios 162
Performance 163
Summary 164
Chapter 11
Risk: How Much Should You Take? 167
Paula Boyer Kennedy, CPA, CFP®
Risks of Specific Asset Classes 170
Market Timing 175
Measuring Risk 175
Risk-Adjusted Returns 176
• x • CONTENTS
ftoc_crosier.qxd 3/29/04 5:36 PM Page x

Tax Risk 177
How Do You Minimize Risk? 177
How Do You Maximize Return While Minimizing Risk? 178
Time and Risk 179
The Psychology of Risk 180
How Much Risk Should You Take? 181
Chapter 12
Fixed Income 185
Peter B. Coffin, President, Breckinridge Capital Advisors
Municipal Market Inefficiencies 187
Portfolio Consstruction 189
Duration—A Portfolio’s Sensitivity to Changes in Interest Rates 189
Ladders versus Barbells 192
Credit Quality and Default Risk 193
Ratings and Bond Insurance 194
Pre-Refunded/Escrowed Municipal Bonds 195
High-Yield Municipal Bonds 196
Premium versus Discount Bonds 196
Call (Early Redemption) 197
Conclusion 198
Chapter 13
Global Investing 201
Lindsey A. Richardson, Principal, State Street Global Advisors
Theoretical Benefits of Non-U.S. Investing 201
Forces of Globalization 202
American Depository Receipts versus Local Stocks 202
Diversification and Returns 204
Opportunity Set 206
Global Mandates 207
Currency 208
Selecting Managers 211
Conclusion 212
Chapter 14
Real Estate 215
Nicholas Bienstock, Managing Partner, Savanna Partners; with Laura Corwin
Burkhart, Founder, Slate Capital
Why Invest in Real Estate? 216
Real Estate Asset Classes 220
CONTENTS • xi •

ftoc_crosier.qxd 3/29/04 5:36 PM Page xi

Real Estate Investment Options 223
Conclusion 232
Chapter 15
Private Equity 235
Sallie Shuping Russell, General Partner, Intersouth Partners
Types of Private Equity Investments 236
Who Will Invest My Money? 238
Common Terms and Conditions 239
Portfolio Example 242
Conclusion 243
Chapter 16
Hedge Funds 245
DeFred G. Folts III, President, Mettowee Capital Advisors
Industry Characteristics and Background 246
Different Types of Hedge Fund Strategies 247
Risk-Adjusted Rates of Return Among Hedge Fund Strategies 253
Variability of Returns Among Hedge Fund Strategies 254
Why Invest in Hedge Funds? 256
How to Think About Incorporating Hedge Funds
into a Portfolio 257
How to Invest in Hedge Funds: Funds of Funds
versus Individual Managers 257
What to Look for in a Hedge Fund Manager 258
Conclusion 262
Chapter 17
Performance 265
Robert E. Phillips, Ph.D., President, R.E. Phillips Systems
Single-Period Return Calculations 266
Multiperiod Return Calculations 268
Comparing Portfolio Returns 268
Composite Performance 269
Adjusting Returns for Risk 270
Estimating Risk-Adjusted Return 271
Comparative Evaluation of Investment Performance 271
• xii • CONTENTS
ftoc_crosier.qxd 3/29/04 5:36 PM Page xii

Chapter 18
Ongoing Management and Accountability 273
Douglas Ederle, Managing Director, SCS Financial and;
Todd Millay, Partner, CCC Alliance
Range of Structures for Ongoing Management 274
Basic Monitoring Criteria for External Providers 276
Reviewing Your Provider’s Peformance over Time 279
Provider-Specific Issues to Watch 284
Summary 286
Part IV
Philanthropy 289
Chapter 19
Philanthropy and the Venturesome Donor 291
Stephen P. Johnson, Vice President, The Philanthropic Initiative
Why Give? 292
Getting Started—Some Definitions 293
Getting Started—The Advisor’s Role 295
Getting Started—Some Questions 296
Giving Well—Qualities of Effective Philanthropy 298
Vehicles for Giving 301
Direct Gifts 301
Conclusion 310
Conclusion—Getting It Right: The Key Decisions
You Will Make 313
Louis P. Crosier
Index 323
CONTENTS • xiii