1. business and industrial

The Mahoney Team
at Morgan Stanley
Wealth Management
From business plan to exit plan
Thinking about selling your company? Learn how other
owners have found help to protect their wealth and
family, and set the stage for a fulfilling future.
By Scott F. Mahoney, CPWA®
Senior Vice President and Financial Advisor
The Mahoney Team, Morgan Stanley Wealth Management
Millions of entrepreneurial Americans have excelled at running their own companies. But when it comes time to sell or transition out of those businesses,
many aren’t sure where to begin. Which option best meets their needs: to retain partial ownership, or sell out completely? To whom should they consider
selling: family, valued employees, a strategic partner, a private equity firm?
How can they structure the sale to meet key objectives such as cash-flowing
their lifestyle, endowing chosen charities and providing for their loved ones?
Each day until 2030, 10,000 members of the Baby Boom generation—including
many business owners—will reach age 65, according to Pew Research Center in
Washington, D.C. The resulting turnover in business ownership could produce
the largest transfer of private wealth in our nation’s history.
As today’s business owners begin to sell, the effect could be profound because
many have so much of their wealth—and their identity—tied up in their companies. That makes it all the more important that they transition out of ownership in a way that honors their company’s past, preserves their wealth in the
present and sets course for a secure future. >>
2
A
fter more than two decades
as a Financial Advisor, I still learn
something every day about
protecting and growing wealth.
And some of the best lessons come from the
entrepreneurs I serve.
When my client Joe* was a child, he watched
his father turn a one-truck garbage collection
route into a successful small business. To
preserve what his father had built, Joe took
over the company. Then, with help from its
faithful employees, he grew it into a waste
management empire.
After years working in company laboratories,
Dee* had developed a formula she believed
would make her employer millions. When her
bosses had no interest, Dee went out on her
own. The company she founded became a
leader in the personal care industry, with
$100 million a year in product sales.
For 30-plus years, Martin* took a modest
salary so most profits could be plowed back
into the building materials business he and
others helped create. At age 60, he was
ready to sell out his share—but not before
looking hard at how the windfall would affect
him, his family and their future.
I’ve been fortunate to work with many successful business owners like Joe, Dee and
Martin. Savvy, determined dreamers, these
individuals possess a will to succeed that cannot be taught. They have overcome countless obstacles that stood between them and
* Names and details have been changed to preserve confidentiality.
their vision. Faced with critical decisions,
they have made the right calls at the right
moments and chose the right people to
work with.
My work with each of them begins at some
point in what is essentially an ownership life
cycle. There’s a beginning, where every
ounce of energy and every available dollar is
poured into the company. There’s a middle,
where the owner counts on valued employees, familiar customers and advisors to help
the company build its brand and battle the
competition. And then there’s an end, where
the business owner will relinquish the reins,
for any number of reasons and in many
different ways.
For years, many of my clients have built and
managed wealth—the beginning and middle
of that ownership life cycle—creatively and
confidently. But I find that, as they approach
that last stage of the life cycle, many of them
are apprehensive. And they should be.
Owners are used to knowing everything about running their company, but often know little about
how to sell out of it. They have
surrounded themselves with
strong partners and advisors—but
in most cases, those associates
will be moving on with the company, leaving owners to navigate
the sale without their counsel.
These owners may be the same skilled, smart
world-beaters they always have been—but
they are entering foreign ground.
3
If these leaders were sailing a
yacht, they’d never grab hold
of the helm without charts, or
leave port without first mates.
If they were flying a jet, they’d
want flight plans and a seasoned crew. So here is what I
tell every entrepreneur who is
contemplating the transition
out of business ownership:
In selling your business, you will be hit
with choices, challenges and emotions
that you have not foreseen. But you can get through it
—and preserve your wealth for
yourself and your posterity —
with sound planning and
advice.
Today, in U.S. business ownership as in the
U.S. population overall, the “baby boom”
generation plays an outsized role. Men and
women born between 1946 and 1964 constitute 26 percent of America’s current population. In 2011, the oldest members of that
generation began celebrating their 65th birthdays —and every day for the next 19 years,
another 10,000 baby boomers will turn 65.
Because about nine million of the 15 million
businesses owners in the United States today
are baby boomers, the coming wave of ownership transitions will probably be the largest
transfer of private wealth in U.S. history.
(Source: Dance in the end zone: The business
owner’s exit planning playbook, by Patrick
Ungashick.)
I got my first view of wealth management
from the passenger seat of a 1974 Econoline
van. Perhaps you wouldn’t call it wealth: My
father, Regis Mahoney Sr., was managing his
two-man electrical contracting business out
of that van, and he probably never made
more than $40,000 in any year of his working
life. And I shouldn’t say “passenger seat”: To
economize, Dad bought that van with just
one seat – his. So when I went to work with
him the summer I was 9, I sat on an overturned milk crate.
Still, what I saw Dad doing that summer was,
fundamentally, wealth management. He was
building a business that would provide for his
family. He was making decisions with a realistic view of the risks and the rewards. He
was working hard, but also working smart.
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And when it came time to transition from
business owner to full-time grandpa, he had
as much reason as any successful entrepreneur to feel proud of his life’s work.
For most of his life as a business owner,
though, my dad didn’t get much help. He did
not have the benefit of counsel from others
who had faced struggles much like his own.
He lacked the research and information resources that business owners today can tap
to guide their choices. And beyond a handful
of conversations with our family accountant,
my father never worked with advisors who
could have helped him maximize and protect
his earnings.
When I chose a career path, instead of becoming a business owner as my father did, I
aimed to become the business advisor that I
wished my father had had. My job, in its essence, is to enable business owners to do
what Regis Mahoney did: provide for his
loved ones and his future.
I serve my clients by sitting in
their blind spot. I tell them what
has been successful—or disastrous—for those who have run the
miles they have not yet run. I tell
them what threats are looming
that they might not recognize,
and how we can help keep those
threats away from their wealth.
Especially at this turning point in U.S. economic history, my job is to help owners act
wisely before, during and after a lifechanging liquidity event.
That means taking inventory of the reasons
to cash out or stay in (see box on page 16),
and making clear-eyed choices. It means
hammering out an exit strategy through consultations with trusted advisors.
It means deciding to whom they would sell —
family member, employees, highest bidder?
It means some soul-searching: Can they really walk away completely, or would they rather maintain some role or stake?
And for those who choose to walk
away, it means smoothing the
transition from a work-focused existence to a productive, rewarding
Act Two.
Once an exit strategy’s foundation
is laid, there are more issues to address. If the owners and their current advisors lack expertise in selling a business, who must they add
to the team to gain that
knowledge? If they are stepping
5
away from an enterprise that occupied them
24/7, how will they fill the void and establish
a new identity?
If the sale will result in significant proceeds,
these individuals may soon see many of their
dreams within reach. They may want to
make a top-flight college education possible
for children or grandchildren. They might
want to provide the seed capital that will give
loved ones a great start in life, whether that’s
with a home or a business. They may dream
of a vacation home on the beach or in the
mountains. They may want to leave a sustaining gift that will enable their favorite
charity to continue its work.
When a seller checks the account
balance after a business is sold
and sees that big number, it’s a
euphoric experience. But from my
perspective, it is also an investment crossroads where it is easy
to take costly wrong turns.
Conscientious owners are used to controlling
business wealth, all the earnings they have
plowed into the company. But until the sale,
many of them never will have controlled so
much spendable wealth. They never needed
to have expertise and confidence in managing and investing significant amounts of
spendable cash—but the moment the wire
transfer hits their account, they will need
exactly that.
That is where the high-value investment advisor comes in. In ideal situations, I would
have begun working with owners when they
first contemplated selling. With my extensive
wealth planning resources, and in consultation with their other advisors, we would
plot every step of the transition, creating a
comprehensive framework for making wise
decisions that help achieve their many
financial goals.
Then we’d all be on the same page by the
time the transfer hits, bringing with it a host
of happy yet weighty questions:

What are the clients’ dreams and ambitions for their life in this next chapter,
and how much income will they need to
cash-flow that lifestyle?

How can they best help provide a measure of security to their children and other
heirs, in a way that helps the recipients
feel financially responsible instead of
entitled?

What are their goals for philanthropic
giving, whether to their community,
their house of worship or their favorite
charities?

What combination of investments will
keep their wealth growing and shield it
from undue risk?
As noted earlier, many business owners now
completing a sale have had a large share of
their wealth—and their identity—tied up in
their companies. That makes it all the more
important that they learn from what previous business owners have done to ensure a
successful sale and an admirable legacy. >>
6
The case studies that follow are drawn from my work leading The Mahoney
Team, which is part of the Morgan Stanley Wealth Management . To preserve confidentiality, I have altered names and other details in the narratives. Although these case studies are composites of many business owners’ situations, they accurately reflect the way I and my team have served
actual clients.
The lead players in these narratives—of diverse ages, family backgrounds and professions, from across
America—had at least two things in common. They held ownership in companies that had achieved
multi-million-dollar success. And they needed help stepping back from that role in a way that achieved
three key goals: honoring the company’s past, preserving their wealth in the present and setting course
for a secure future. I have been proud to serve them and am happy to share what I learned from them.
business selling remanufactured machinery,
equipment and tools.
By selling to a strategic
partner, co-owners preserve
their family business while
moving on with their dreams.
A&B Equipment, Brooklyn, NY
Remanufactured equipment business
Co-owners Ahmed* and Bashir*
Ahmed and Bashir are first cousins. They
have been as close as brothers since childhood, when their parents left Beirut together
and settled with other Lebanese Christians in
Brooklyn’s South Ferry neighborhood. As
young men, they kept one foot in their native
culture while pursuing their American
dreams: business courses for Ahmed, machinist school for Bashir. When South Ferry’s
factory owners began calling on Bashir to
help find machinery or parts they needed,
the cousins saw an opening. Soon, their parttime salvage work grew into a full-fledged
Five years after they had started, Ahmed and
Bashir’s business, A&B Equipment, had outgrown its warehouses around New York. I
met the cousins when I helped them arrange
a line of credit to acquire space in New Jersey. Not long after that, Ahmed called to say
the two were contemplating another move:
Selling the business.
To begin exploring their interests and options, I invited Ahmed and Bashir to a discovery meeting. Whether individuals are considering a business sale or some other important financial move, this meeting is always the first step in understanding his or
her wealth management needs. Through
wide-ranging discovery interviews, we would
examine the cousins’ current situation, list
the goals they wanted to achieve and identify the challenges standing in the way of
those goals.
Bashir and Ahmed were very clear on their
reasons for considering a sale. While they
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
7
had worked 16-hour days, their children had
grown up and launched careers—in medicine, education and the arts, but none felt
drawn to the family business. Each man
longed to spend more time with his grandchildren than he had spent with his own children when they were young. As the business
prospered, both had moved their families
from Brooklyn to exclusive communities on
Long Island. Ahmed was dreading more long
drives to A&B’s warehouses, and Bashir
wanted to spend more time in South Ferry
working on a project close to his heart: a cultural center dedicated to preserving the Lebanese immigrant community’s history.
Not surprisingly, the two were less clear
about what to do next. They wanted to sell at
the right time to get the greatest reward for
all their hard work. They wanted to find the
right buyer, someone who would keep their
veteran employees on the job and their longtime customers satisfied. They knew they
would need highly specialized financial and
legal counsel, but had no relationships with
such advisors. I ended our discovery meeting
by setting a date for a planning meeting two
weeks later. At that session, I outlined my
team’s holistic approach, and presented my
diagnostic of the cousins’ situation and my
recommendations for moving forward—the
plan that would form the foundation for our
work together.
Ahmed and Bashir looked over the plan with
their families and lawyers, and liked what
they saw—so in another two weeks, we
reconvened for a mutual commitment
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
8
meeting. We agreed to work together, and
executed the confidentiality agreements and
other documents necessary to get started.
My first task as the cousins’ wealth manager
was to help them sort through the many options before them in structuring a deal. Option one: An outright sale of the company,
paid in cash. Option two: A deal that paid the
partners somewhat less, in cash and in stock,
and required that they stay involved with the
company for a transition period. Option
three: Selling part interest to a private equity
firm to get some of their equity out and
growth capital in, but remaining part owners.
We set about getting the cousins what they
needed to make informed decisions. To help
them assess the appeal of option two, the
cash-and-stock deal, I took them to meet
one of my firm’s leading stock analysts. The
approach had its merits—but because both
men were eager to move into the next chapter of their lives, they chose option one, the
straight sale.
In follow-up meetings, I began connecting
the cousins and other A&B personnel to specialists from my firm and network. That included tax and M&A specialists who could sit
down with A&B’s comptroller and do due
diligence on years of titles, property purchases and transactions to be sure no surprises
would arise at closing. I introduced the cousins to several of the blue-chip, boutique investment banking firms with whom The Mahoney Team has alliances, with emphasis on
banks that had done deals similar to theirs
and knew both their industry and the marketplace. Then I attended meetings with
them and advised them as they chose the
banker who would put together a book for
use in pitching A&B to prospective buyers.
Through my involvement with all parts of the
process, I was coming to know A&B and its
owners much better. In the near-term, I was
focusing on the structuring of the deal and
execution of the sale. But I also was taking a
longer and broader view toward investing
the eventual proceeds to gain the most benefit for Ahmed and Bashir over the long haul.
While the sale process often involves a large cast of characters—
auditors, brokers, lawyers, bankers—most of those players move
on afterward. Then, typically, I
am the last one standing with the
sellers, essentially serving as the
chief financial officer to their family in concert with their attorney
and accountant.
The first-rate investment bank that Ahmed
and Bashir chose went to work, creating the
pitch to sell A&B and determining the range
of prices for which it might sell: one worstcase, one best-case and one in-between. The
cousins, frankly, found all three projections a
little mind-boggling. So while the bankers
pursued the sale, I developed scenarios with
the cousins for managing the proceeds.
I strategized with them and tax attorneys on
how to structure the sale to minimize tax implications. We devised investment plans that
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
9
would protect and grow their wealth and
cash-flow their lifestyles. And I worked with
each cousin individually to build his dreams
into the deal: For example, we set up a foundation for Bashir into which he would transfer some of his A&B stock and then, when
the strategic partner bought A&B from the
foundation and the cousins, the foundation
would have funds to use for the Lebanese
cultural center. Ahmed chose to establish
trusts for his descendants.
Just about eight months after I had begun
working with them, Ahmed and Bashir—who
together had $278 in the bank when they
started their company—signed an agreement to sell it for millions of dollars. As part
of our Wealth Management Consultative
Process, I see them once a quarter at regular
progress meetings to review investments
and plans. They’ve never looked back since
the sale. And they’re still active in their old
neighborhood, where they recently helped
A&B’s new owners start a job-training program for ambitious youngsters like they
once were.
Selling to employees allows
an owner to preserve the
business his family built as
he eases out of leadership.
Titan Collection, Toledo, OH
Waste management company
Owner Joe*, son of the founder
When Joe recalls his childhood, one image
stands out: His father Al’s big hands on a big
steering wheel. Even after Al’s garbage collection business had grown from one truck to
a small fleet, Al still took to Toledo’s streets
several mornings a month, to keep his hand
in. On some days before school, Joe would
ride along with his father for part of the
route, drinking cocoa from his small Thermos
as Al drank coffee from his large one.
Al always had dreamed his children might
someday help run Titan Collection, but that
was as far as he got. That is
surprisingly common: When
CEOs of America’s privately
held companies are asked
about their preferred exit options, the majority say they’d
like to transition the business
to a succeeding generation.
But a fall 2011 survey of high
net worth families conducted
by SEI found that fewer than
half of them actually had a plan
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
10
or strategy in place for the transfer of their
wealth to the next generation.
Al was proud that Titan’s success enabled
Joe, like his two sisters before him, to go to
an Ivy League college. But by the early
1990s, to stay competitive, Titan needed to
expand, and Al had neither the resources nor
the energy to make that happen. At home
during the summers, Joe, a business major,
saw signs that the company was in decline,
and Al’s spirits along with it. In Joe’s senior
year, when he told his father he hoped to
work at Titan after graduation, Al’s tightlipped response was: “If it’s still here.”
Two weeks after Joe got his diploma, Al
passed away in his sleep. Joe couldn’t stand
the thought that the company his father built
might vanish, as Al had feared. Joe was
scared and green, but determined. He put
together a plan, secured a bank loan, and by
1996 was sole owner of the business.
Joe’s first act as sole owner was to bring back
a former employee—a lieutenant of Al’s
when Joe was a kid—and make him Titan’s
CEO. “I want to surround myself with highquality talent and people who share my values,” Joe told me when we met.
For the next few years, Joe and I met once a
quarter with my firm’s analysts. Picking their
brains about what other firms in his industry
were doing enabled Joe to stay on top of
trends.
With insights from those meetings, Joe grew
Titan into a business Al would have liked—
one that cared for its employees with good
benefits and stock-sharing plans, yet ran up
very little business or personal debt.
After a few years, Joe and I both knew that
Titan could become an even bigger enterprise, but that Joe couldn’t realize its full potential without giving up his quality of life
and precious family time. By this point, we
had developed a frank relationship, and Joe
spoke his mind. “I love and admire my dad,”
he said, “but I don’t want to repeat one mistake he made: I don’t want to die in the saddle. It’s a big world out there, and there are
other things I want to do. So I want to start
easing myself out of the business—but I still
want it to thrive.”
For any owner who has poured
lifeblood into his or her company,
contemplating its sale will be
emotionally difficult. I knew Joe
would need to do more than just
achieve his financial goals with
this sale. He also would need to
honor his father’s legacy and to
do right by the employees who
had stood with them both.
I offered Joe what I considered his best options, and we began to explore them. Joe
could sell Titan to a private equity firm,
whose goal would be to grow the company.
He could structure that sale to keep only as
much investment and involvement in the
company as he wished.
Joe and I sat through meetings with several
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
11
internal market from
which Titan employees would buy the
shares. Joe paid virtually no tax on the sale
proceeds which we
then invested for him.
private equity firms in my network, and Joe
heard them out. But partnering with them
felt, as he put it, “like a marriage that wouldn’t make it past the church doors.” By going
through that process, Joe and I both discovered just how concerned he was about entrusting the company to outsiders.
“I do want to sell,” he said in frustration after
one meeting. “But I’m never going to sell to
someone who might close the company, or
move it out of town, or fire all my people.
These are people who have been with my
dad, and now with me…” The more Joe
spoke about Titan’s people, the clearer it became to me: Joe’s best option was to sell his
company to them.
The employee stock ownership
plan (ESOP) that we helped Joe
set up was ideal for his situation.
It allowed Joe to sell a big, initial
chunk of his Titan shares to an
The company could borrow
money to fund the ESOP’s
purchase of shares and enjoy
the tax advantage of servicing that debt with pre-tax
dollars. As Joe sold and employees bought more shares
from the ESOP over time, he would be transitioning the company to strong, seasoned
managers who shared both his vision for and
devotion to Titan.
Employees would keep their jobs and benefits. Vendors would keep their contracts and
the community would keep a major employer. Joe had found a winning solution—and
such a lucrative exit strategy that he and I
began meeting twice as often, to manage
the investment of his new-found spendable
wealth.
Since Joe signed off on the ESOP deal a few
years ago, Titan has continued to flourish.
Joe is still active as a company advisor, but
now enjoys Titan’s success without worrying
about day-to-day operations. He achieved
this happy outcome—one that would surely
make Al proud—by making principled,
well-informed choices with advice from
specialists.
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
12
Giving heirs a role in business
growth and formation allows
owners to transfer wealth
and responsibility over time.
Mi Vida Buena/MVB Inc., New York, NY
Restaurants/markets /food distribution
Co-owners Luisa* and Esteban*
The first thing I heard about Luisa was that
her family made the best Puerto Rican food
in all of Spanish Harlem, from the gumbolike asopao to the roast pig known as lechón.
Later, I heard the whole story of how she expanded from a single storefront into a market and food distributor. And later still, it was
my pleasure to help Luisa and her
husband, Esteban, structure the family
business’ expansion so it would provide income for their descendientes and for their
golden years.
Luisa is a classic example of how,
with diligent advance planning,
an entrepreneur can get what she
wants from her transition out of
ownership.
aging Signore Accetto—and when that kindly
gentleman retired, he gave Luisa and
Esteban a sweetheart deal to buy him out.
Luisa painted a new sign for the storefront
with the name she had chosen: Mi Vida
Buena, “my good life.”
The deli became a Latin foods market and
café, with sales increasing as more Hispanics
moved to the neighborhood. The couple
bought the house next door and lived there
with their growing family, four sons and a
daughter born in an eight-year span. When
more storefronts opened up on the block,
they bought those, too.
What started as a sideline selling Latin delicacies to other markets mushroomed into a
food distribution business, MVB Inc., serving
restaurants and retailers all over New York
City. Luisa became literally the face of the
business, with her smiling likeness on food
wrappers. Esteban kept the books, hiring
more accounting assistants as the businesses’ profits soared.
At lunch, Mi Vida was often full of hungry
financial professionals. Two regulars, principals at a prominent investment firm, had told
Luisa for years that her restaurant was good
enough to go national. Their comments got
Luisa and Esteban arrived from Puerto
Rico as the upper-Manhattan neighborhood once known as Italian Harlem was
on its way to becoming Spanish Harlem.
Luisa’s brothers helped her get hired at
the small deli where they worked for the
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
13
her thinking: What else did she hope to
achieve in this good life?
From my first discovery meeting with Luisa
and Esteban, they knew what they wanted
most: to help their children find rewarding
work, within the family business or outside it.
As youngsters, all five had worked their shifts
at Mi Vida and MVB. Now, all were in or
through college. They were ready to launch
careers—just as Luisa was hearing, from customers and advisors, that the sky was the
limit for her company.
formation into a draft investment
policy statement (IPS), a document that captured their investment philosophy and goals.
Once Luisa and Esteban signed off on that,
we began work with others in our network to
roll out a multistage plan to both grow and
manage their wealth.
Luisa and Esteban saw no need to create
more wealth for themselves. They already
had more than they could have imagined
when they arrived from Puerto Rico. They
were generously supporting the construction
of a school and clinic in Luisa’s hometown.
They also wanted to support their children,
but not hobble them with handouts.
For example, I arranged a meeting for Luisa
and key players on her staff with business
development specialists from my network. If
the family wanted to grow the MVB empire
in ways that paved the children’s career
paths, what was the first logical move?
Luisa’s answer was immediate: Their
firstborn, Carlos, had a culinary school degree and a longing to run his own restaurant.
The popular Mi Vida turned diners away
most nights. Why not let Carlos open a sister
restaurant nearby?
Tailoring our Wealth Management Consultative Process to
meet the family’s needs, we fashioned the discovery meeting in-
While Carlos scouted locations, I walked
Luisa through an expansion plan with a twist.
Although she and Esteban would bankroll
the new venture, we would structure the deal
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
14
with Carlos as sole owner. That
way, the family would be building wealth, but not wealth that
the parents would someday
have to transfer (with all the
attendant costs) to the child.
The process could be repeated
for other children and, in time,
grandchildren.
Research told us that MVB Inc.
products would find buyers beyond the New
York City area. The couple’s second son,
Hector, whose degree was in retail and merchandising, was eager to plant a Mi Vida
market in New Jersey, and could imagine
more markets, even franchises, in the future.
The family’s only daughter, Mariela, favored
writing over restaurants. With our team’s
business development experts, she drew up
plans to establish a small press publishing
company, with an emphasis on showcasing
emerging Latina authors.
Sons Jorge and Jose, still in college, are looking forward to the opportunities that their
parents will underwrite for them. Luisa has
warned them that she might just move them
into her kitchen and administrative jobs, and
take early retirement. I think that she is joking—but if or when she is not, we will help
her with that passage, too.
The needs of a family like Luisa’s dovetail
perfectly with the approach The Mahoney
Team uses to address four areas of a client’s
financial life. We focus on:
Wealth enhancement—try to achieve
the best possible investment returns
consistent with the client’s level of risk
tolerance and to help minimize some of
the tax impact on those returns.
Wealth transfer—to find and facilitate
the most tax-efficient ways to pass assets to succeeding generations, in a way
that honors the client’s wishes.
Wealth protection—to help safeguard
the client’s wealth against potential
creditors, litigants, children’s spouses
and potential ex-spouses.
Charitable gifting—to fulfill the client’s
charitable and philanthropic goals, in
balance with the other three aspects of
his or her financial life.
My team’s service to Luisa has so far focused
most on wealth transfer. But clearly, none of
these areas stands in isolation from the rest.
By creating an overall wealth management
plan with Luisa years before she expects to
transition out of her business, I can work with
her systematically on each area while maintaining an integrated approach to them all.
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
15
Selling to a private equity
firm lets an owner keep a role
in her company and grow
wealth while working less.
GADco, Inc., Scranton, PA
Personal care products manufacturer
Founder and owner Dee*
Her Italian-immigrant mother insisted on
naming the baby girl Donata, a family name
meaning “gift from God.” But as she grew up
in lower-middle-class, urban Pennsylvania,
everyone called her Dee. A dogged student,
Dee took junior-college science classes at
night while working days as a secretary, at a
giant consumer goods company whose personal care products were in most Americans’
homes.
come with her, and went out on her own. In a
nod to her heritage, she named the fledgling
company GADco—G-A-D for grazie a dio,
“thanks be to God”—and began building a
line of Grazie treatments and cosmetics.
In the early years, Dee spent 16-hour days at
GADco, pumping every penny the family
could spare into the business. Two friends
since childhood—Sam, an attorney, and Karen, an accountant—gave her pep talks and
free advice. Once her products hit the market, they were even more successful than
Dee had imagined.
By its 10-year anniversary, GADco had expanded from one plant to two. By its 20-year
anniversary, both sons had joined the business, which had several hundred employees.
After 30 years, GADco’s annual sales exceeded $100 million. While building the business,
Dee and Rocco never left the family’s
hometown—until a fire destroyed their
home, and they moved to a country estate.
Dee was promoted to a laboratory job the
same year she and her high school sweetheart, Rocco, were married. By the time she
was a lab supervisor, she and Rocco had
bought a modest house in a small suburb,
where Dee’s mother lived with them and
helped care for their two sons.
The fire and the relocation caused Dee to
take stock. She knew GADco was ripe to become an even bigger player in its field. But
she was pushing 70 and felt that neither she
nor her sons, Sal and Frank, were fully capable of taking the company to the next level.
In 1972, after years of off-hours experiments
trying to develop antiaging skin care preparations, Dee hit pay dirt. She went to the
company with her revolutionary idea. Her
superiors rejected it. Convinced she could
find a market for such products, Dee persuaded a few key scientists in the lab to
Dee wanted GADco to thrive—
and she wanted to spend half the
year chasing grandkids around
the country house, and the other
half in Florida playing golf with
Rocco. Dee felt ready to team up
with a private equity firm.
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
16
When friends introduced me to Dee, she had
no idea how to arrange such a deal, but a
good idea of what she wanted from it. She
wanted her sons to remain in the company.
She wanted to keep an ownership stake and
a board seat for a while, then ease out of the
firm altogether. And she wanted to be sure
that her proceeds, carefully invested, would
allow her and Rocco to live comfortably in a
house by a Florida fairway. In discovery and
planning meetings, I helped Dee dig deeper
on each of these goals. And I introduced her
How Will You Know When It’s Time to Sell?
New York Times business blogger
Barbara Taylor says that many
owners reach a point in the life of
their businesses where they hit a
wall, a point beyond which they
are either unable or unwilling
to go on. The wall can be generally
defined as 1) motivational,
2) capital, 3) operational,
4) marketing and 5) transfer.
Investment banker Richard Trottier
describes them in detail in his
book, Middle Market Strategies.
Every business owner will hit one
or more of the walls that stand
between them and the growth of
their business. It’s important for
business owners to start the exit
planning process as soon as they
have a sense for what wall they
have hit—or may hit in the
future—in order to preserve both
the value of the business and their
options for a successful exit.
Barbara says it may be time to
consider selling your company if:
 “It’s not fun anymore. Burnout
is a very real issue for business
owners, and an
entirely legitimate
reason to sell.”
 “You’re not inclined to invest in
growth. You may be comfortable
with the current size and
profitability of your business and
have no desire to make the capital
expenditures necessary to take it
to the next level.”
 “You feel your management skills
are overmatched. It is not
uncommon for business owners to
build their business to a certain
point and then realize they lack
the skill set required to go
further.”
For entrepreneurs considering
when to sell, Barbara also
recommends the book Every
Family’s Business: 12 Common
Sense Questions to Protect Your
Wealth. Author Thomas William
Deans provides a useful template
for how owners should be
reviewing their business and
succession plans on an
ongoing basis.
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
17
to a veteran private investment firm leader in
my professional network: Chris Michalik,
managing director of Kinderhook Industries.
Chris knows that while price is important to
entrepreneurs in selling their business, it’s
hardly the only factor. As Dee contemplated
looking for a buyer or PE firm, Chris listed
three other considerations to keep in mind:
Information risk. “As you will be opening
your books to a stranger, or many strangers,
all of your confidential business information
will be at risk—and the broader you go in
search of a buyer, the greater the chance
your competitors will learn your secrets,”
Chris cautions. By working with an investment firm, a seller can limit the dissemination of information and ensure that a solid
organization stands behind a confidentiality
agreement.
Certainty of close. “Selling a business is a
difficult process and most likely, you only
want to experience it once,” Chris says. “So
you should look for a buyer or partner with a
long-term track record of successful execution.” Chris advises asking a potential buyer
or partner “to allow you to speak to the last
five sellers from whom they have acquired
businesses. If they can’t give you five completed deals, then their experience is in question. If they won’t give you the last five, then
look elsewhere.”
Future and legacy. Chris says a seller can
refine their thinking about who they want as
a buyer or partner “by answering a single
question: ‘What are my thoughts on the future of my company and my involvement?’
Because that buyer or partner will play an
integral role in determining the seller’s legacy and the role they play in the business going forward.”
Between my counsel and Chris’s, Dee and
her family had a lot to consider. I suggested
an approach that I have found especially productive: A family retreat where the key decision-makers could talk business in a more
relaxed atmosphere. On the appointed
weekend, I met Dee, her husband and her
sons’ families at a lakefront lodge, complete
with a Little Ranger program to occupy the
grandkids.
My two-and-a-half-day agenda included
time for shared meals, canoeing and golf—
but mostly, conversations designed to determine a course of action. Not surprisingly,
Dee and the others didn’t always see eye to
eye, and occasionally tempers flared.
Sometimes, my role in managing
wealth is also managing family
dynamics. And that means helping the decision-makers recognize and leverage all the expertise, experience and goodwill
within their group.
In that spirit, we evaluated each investor that
had expressed interest in GADco and played
out likely scenarios for the next five years
under each. Ultimately, Dee settled on a firm
that was appreciative of her company’s his-
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
18
tory, accommodating to her family interests,
and ambitious about maximizing GADco’s
value in coming years.
Anticipating that growth in value, I created
trusts for Dee’s children and grandchildren
with a specific plan. Dee made gifts to the
trusts, which had tax benefits for her. The
children used the trust cash to buy GADco
shares from Dee. In that way, Dee could
transfer value to her offspring—and as the
new firm grows GADco, the kids’ and grandkids’ holdings will gain value.
Dee and the PE firm had struck a deal that
delighted all parties. While Dee sold out of
GADco, her sons retained financial stakes
and leadership positions there. Dee’s grandkids still saw their dads going to work every
day in the family business, continuing the
family work ethic.
The PE was thrilled to keep each son’s particular strengths: Sal’s rapport with employees,
and Frank’s ties to buyers and suppliers. To
compound those strengths, the PE firm
brought in a new president who could take
the company to a new level—perhaps even
to the point of selling to a strategic partner
who would take the company public.
Meanwhile, Dee is living her dream life. A
generous income from careful investment of
her proceeds from the sale. A seat on GADco’s board, and regular appearances in the
community as an ambassador for the business. “So I still have a hand in,” she says happily—plus all the grandma time and golf time
she desires.
Selling his share of a start up
enables a father to make
investments in his children’s
future as well as his own.
BuildWell Corp., Green Bay, WI
Building materials manufacturer
Founded by owner Larry* with
11 employees, including Martin*
From the time Martin became one of the first
employees of a Wisconsin building materials
business 35 years ago, he had known when
he would sell: at age 60. The company’s
founder, Larry, told his small band of 11 colleagues that if they accepted modest salaries
and left the rest as equity in the business,
BuildWell Corp., he would guarantee each a
hefty payout when they hit 60.
The years passed, and the company prospered and expanded. Martin, an engineer,
stayed on the job through a series of life
changes: becoming a single father to his two
children after his marriage ended, then remarrying and becoming a father to two
more. As Martin neared his 60th birthday, he
and Louise had been happily married for 22
years, and the family’s four children ranged
in age from 32 to 19.
The week after Martin’s farewell party at
BuildWell headquarters, $90 million landed
in his bank account. He says the moment was
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
19
both exhilarating and sobering, but he felt
generally prepared for it, thanks to conversations we had beforehand. Through discovery
meetings with Martin and Louise, I had
learned what was important to them in seven
life areas: values, goals, relationships, assets,
advisors, process and interests. I learned
about hobbies they wanted to pursue and
projects they wanted to support, including a
small foundation Louise had launched to
help disadvantaged children. I also had
touched base with the couple’s existing advisors and had become familiar with their operating style as investors. I organized what I
learned into the total client profile flow
chart below, making it easy to see how
each aspect of their financial life related to
the others.
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
20
During discovery, it was instantly apparent
that one of Martin’s key concerns going forward was the four grown children. Of the
four, son Paul and daughter Kay were married and raising families. Son Rob, disabled
by a brain injury, was living at home and
would always need dependent care. Youngest son Kirk was just starting college. The
couple had raised the children in comfortable
affluence, but never really had spoken about
the fortune that Martin was amassing.
Over the years, I have learned
that even the most self-assured,
articulate clients can be squeamish about discussing their wealth
with their children. It’s like the
stereotype of parents nervously
attempting “the talk” about sex:
They’re not sure when to raise the
matter, or what to say.
Shortly after Martin’s retirement, he, Louise
and three of their children came to my office
for a seminar designed to help families discuss finances. I could tell Martin still was uncomfortable, so I offered to meet first with
his sons and daughter to break the ice.
In the conference room with Paul, Kay and
Kirk, I asked if they knew why they were
there. “I guess because our parents are rich?”
Kirk ventured. They said they had drawn that
conclusion years ago because Martin’s company was so profitable and the family could
afford extras like a vacation home.
“But Scott, we don’t care,” said Paul, a successful real estate broker. “Our parents are
young and healthy, and we won’t have to
think about inheritance for years.”
I saw Kay’s brow furrow and encouraged her
to say what she was thinking. “I could use
some help now,” she said quietly. While she
stayed home with three small children, her
husband Steve’s earnings as an insurance
agent were barely covering the bills, and being cash-strapped was
affecting their marriage.
Kirk spoke up next: “I’m
starting to invest in real
estate,” he said. He and a
friend scraped together
$10,000 to buy a small
property they hoped to
sell at a profit later, “but I
can’t talk to my dad
about this,” he said,
“because he’d make me
feel badly if I am doing
it wrong.”
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
21
When I returned to meet with Martin and
Louise, I candidly summarized what their
children had said. Martin hung his head and
as Louise put a hand on his knee, a tear rolled
down his cheek. After a moment, he made it
clear that he wanted to help his kids but was
reluctant to “just hand them money.” We
settled on an approach that I had used before: customizing a financial opportunity or
solution for each child. We built these solutions into the overall action plan for Martin’s
investments— a plan whose framework we
displayed in another flow chart, below. It
showed how Martin’s efforts for his children
related to other parts of his investment strategy, and made it easy to track which actions
were completed, which were in progress and
which would occur in the future.
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
22
For Rob, the solution would be
straightforward: a trust that
would perpetually pay for his
care. Paul had no immediate,
personal need for funds, but was
happy for Martin to set up generation-skipping trusts for his children. For Kirk, a partnership with
Martin would provide access to
real estate investment capital
(and fatherly advice, if he chose
to ask for it). And for Kay, the
solution was literally a new start:
Martin would help her and Steve acquire an
insurance agency from an owner poised to
sell. As I worked with Martin and Steve to appraise the prospects and then structure the
purchase, I watched the men become not
just partners but closer friends. Kay was
overjoyed.
Now that Martin and Louise have
directed wealth to the benefit of
each child individually, I’m working with the family to manage it
collectively. At an upcoming family meeting, I’ll help the parents
and siblings draft a financial constitution that lays out the vision,
values and goals they share.
The siblings then will nominate charities they
think fit the constitution’s principles and develop proposals for funding them. Then together, they’ll all decide which charities will
receive grants from a donor-advised fund that
Martin and Louise have set up.
Clients thank me for leading them through
this process because it gives them insights
into how their children might perform in a
future business venture or family foundation.
It allows them to lay the groundwork for their
children—and their children’s children—to be
stewards of the abundance for which they
worked so hard. And it is, in the final analysis,
less about looking after wealth than it is
about family members looking out for each
other.

During that summer I spent going on electrician’s calls with my dad, he would make the
same stop at the end of every Friday. He
would pull up to his sister’s home, put his
hand on my shoulder and say, “Son, stay right
here. I will be back in a few minutes. I just
need to speak to your aunt.”
Desperately curious, I would watch through
the van windshield. As Dad approached the
front stoop, he would put his hand in his
pocket. My aunt would open the door, and
* The case studies presented are provided for illustrative purposes only. Past performance is no guarantee of future results. The information has been obtained from
sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. These strategies do not guarantee a profit or protect against loss and may not
be suitable for all investors. Each customer’s specific situation, goals and results may differ.
23
most days she either was crying or looked like
she had been. They would exchange a few
words, and then my dad would clasp her one
hand in both of his. When he returned to the
van, he would say little for our ride home.
One Friday, I snuck out of the van, ran around
the side of the house and crouched within earshot. I couldn’t hear everything, but enough to
figure out what was going on.
My aunt’s husband—Dad’s partner in the business—had been ill off and on, but this summer
he was too sick to work. So my dad was supporting his sister and brother-in-law’s family as
well as our own. The Friday handclasps, when
he discreetly handed her money, would go on
for many years.
I snuck back to the van before Dad returned,
and I never asked him about what I had heard.
But I later learned that other relatives also had
counted on Dad as the go-to guy for counsel
and support.
I hope I am becoming even half the man my father was. My goal, personally and professionally, is much like his: to protect and provide for
family—mine, and my clients’. At The Mahoney
Team, that is what we do.
About Scott F. Mahoney
Scott Mahoney specializes in helping his clients through significant financial
transitions, particularly clients who own their own business. Drawing on his
experience, Scott strives to make sure business owners know what to expect
during and after the sales process. He knows that when a business owner
decides to relinquish the reigns, he or she has to focus on making the best
possible business decisions. As a result, they often overlook preparing for life
after the transition. With Scott’s assistance, they can put a long-term plan in
place that helps them realize new goals—and challenges— that face them and
their families.
At Morgan Stanley Wealth Management, Scott leads The Mahoney Team, a select group of wealth
management specialists who share Scott’s vision and passion for investment excellence. With the
team’s support, Scott serves as Portfolio Management Director for clients. He not only actively manages money for affluent families, he confers regularly with those clients’ other professional advisors to
make his wealth management more coordinated and effective.
Over the last 20 years Scott has earned top industry certifications for his financial management expertise. He has been named a Certified Private Wealth Advisor® by the Investment Management Consulting Association. He also has earned the Family Wealth Director designation issued by Morgan Stanley
Wealth Management, recognizing his knowledge and experience in many aspects of wealth management. Scott’s articles on investment strategy have appeared in Worth and several business management magazines. He has also appeared on Fox Business News and other financial news broadcasts.
24
The Mahoney Team
at Morgan Stanley
Wealth Management
Scott F. Mahoney, CPWA®
Senior Vice President and Financial Advisor
Direct: (866) 932-3032  Branch: (973) 539-6700
Fax: (973) 695-1669
Email: [email protected]
Twitter: @themahoneyteam
>> For reprints or more information, please contact Dorothea Accetta, Registered Senior
Client Service Associate, at The Mahoney Team at Morgan Stanley Wealth Management.
By phone: (866) 932-3032  By email: [email protected]
By mail: 1200 Mt. Kemble Avenue, P.O. Box 1903, Morristown, NJ 07962
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates and Morgan
Stanley Wealth Management Financial Advisors or Private Wealth Advisors do not provide tax or legal advice. This material was not intended or written to be used for the purpose of avoiding tax penalties that may
be imposed on the taxpayer. Individuals are urged to consult their personal tax or legal advisors to understand
the tax and related consequences of any actions or investments described herein.
The investments listed may not be suitable for all investors. Morgan Stanley Wealth Management LLC recommends that investors independently evaluate particular investments and encourages investors to seek the
advice of a financial advisor. The appropriateness of a particular investment will depend upon an investor’s
individual circumstances and objectives.
This material does not provide individually tailored investment advice. It has been prepared without regard to
the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors.
© 2012 Morgan Stanley Wealth Management. Member SIPC.