One of the most commonly overlooked assets in M&A activity and business succession planning is life insurance. Business Valuators do not include life insurance as part of the Business Valuation. Astute planners who are aware of this fact can uncover additional liquidity for their clients that are normally overlooked by both the buy side and the sell side. Most businesses own key-person policies, have buy-sell agreements, or other forms of insurance in place to protect their business. These assets are not included on the balance sheet. Business owners who are selling their businesses are often age 65 and older and therefore are prime candidates to recoup fair market value for their life insurance.
Case Example | Sell side overlooks $800,000
A Business Exit Planner was helping his client sell his business to a private equity firm. The Key-Person policy was not included in the Business Valuation and the Private Equity Firm purchasing the business had no interest in the policy. The Exit Planner negotiated release of the policy to the seller.
• The business sold for $28 Million
• The 76-year-old seller retained the $10 Million entity owned insurance policy
and sold it on the secondary market for life insurance for a lump sum of $800,000
