With careful planning, you can enjoy and safeguard all that you’ve built while staying involved in your business for as long as you want.
Lakshmi* had built a very successful U.S. textile company. It was valued at over $50 million and made a profit of approximately $8 million per year. Lakshmi ran the business and served as lead designer.
Now in her fifties, happily married and with two daughters in college, Lakshmi didn’t want to work the long hours she had when she was younger. And while she may have been ready to relinquish the business reins, she didn’t want to stop designing textiles—it was her passion. And she certainly didn’t want to jeopardize the wealth she had worked so hard to attain.
The textile industry can be fickle. It has inherent cyclical risks. Despite Lakshmi’s desire to pass the business on to her daughters, neither showed any interest in the field.
Lakshmi knew that she needed a gradual off-ramp that would protect her lifelong investment. So she turned to J.P. Morgan Private Bank to help her create what she referred to as a “stay rich” plan—and to craft a long-term exit strategy.
We saw that Lakshmi needed to diversify without selling the company outright. She’d stay involved in her business as the creative director, but we would help her move much of her wealth—and responsibility—out of the company. Then, we’d invest that capital in assets that didn’t face the same risks as the textile industry.
Our business advisory group helped Lakshmi put together a plan with four key components:
- Private Equity. Based on our review of her business options and our advice, Lakshmi sold a controlling interest to a private equity partner. This allowed her to stay involved in the aspects of the company that she loved, but it also let her hand day-to-day operations to her senior managers and the private equity firm.
The partner she chose had deep manufacturing experience, plus investments in other retail companies. At some point, Lakshmi plans to sell the rest of her company, likely when the private equity firm is ready to market the entire business. She might retain a consulting role for a period of time and eventually bow out. As part of these transitions, her key employees will receive stock appreciation rights, both to reward their loyalty and to align their interests with hers moving forward.
- Portfolio. With the funds from the partial buyout, we created a complementary diversified portfolio. After determining Lakshmi’s risk tolerance, our specialized team took over investing it—within her comfort zone.
- Specialty financing: Lakshmi and her husband also collect fine art. They wanted to use some of the partial-buyout funds to buy a new piece. Our fine art lending team helped Lakshmi take out a line of credit on her current collection, and use that loan to purchase the artwork. This approach made more sense than paying for it outright, since it kept her more liquid.
- Trusts: Lakshmi knew she wanted to share the benefits of her life’s work with her girls. As a proud breadwinner, nothing gave her more joy than knowing that her hard work gave her children more opportunities in life. She worked with our trusts and estates specialists to create a trust that helps her benefit from tax efficiencies now, and provides for her daughters’ well-being long into the future.
- Private foundation: Lakshmi and her husband used some of the funds from the partial sale to create a private foundation. She’d always dreamed about supporting artists like herself, so she dedicated her foundation to helping aspiring designers and introducing underprivileged youth to visual arts.
*Names and details have been changed to protect our clients’ identities. Information is not a guarantee of future results.