Having a clear idea of your goals well ahead of the sale or listing of your business will help you set your strategy early on. You may want to sell all of your interest and walk away immediately. You may want to protect the jobs of your existing staff. Or you may have a particular figure in mind to deliver financial security not just for your immediate family but for future generations as well. We can help you plan for all of these situations, and more.

The situation

Lucy* is a 45-year-old tech entrepreneur whose company had recently listed. She had retained a 10% stake in the business and was considering how much of this she should sell. Her shares were valued at around £100m.

She was ready to reap the rewards of years of hard work and had plans to buy a substantially larger home and a holiday property. She also wanted the flexibility to increase family spending significantly, up to £2m a year. Other priorities included having cash to invest in future start-ups and to seed a foundation in the family’s name.

Our approach

Our team worked with Lucy to create a plan to diversify her holdings, taking into account the uncertain return path for the newly listed business and the direction of the markets generally. Leveraging our forward-looking capital market assumptions, we assessed her core capital and excess capital requirements across a range of diversification strategies. 

We then modelled three options for Lucy to evaluate:

  • Maintain 100% of her holding in shares of the newly listed business
  • Sell 50% of her holding
  • Sell 100% of her holding

Using our proprietary forecasting tools, and taking into account the higher risk and return profile of a single stock versus a well-diversified portfolio, it was clear that retaining the 100% holding in the company indefinitely would be a challenge. It would leave little excess financial resources to reinvest in future start-ups. Or to establish a foundation in the family’s name.

In addition, the analysis showed that while retaining 100% of her shares could result in the greatest level of wealth creation—the potential for up to three times the level of wealth in the best potential outcome—it would also expose the family to a level of volatility and risk that was outside their comfort zone.

After a deeper dive with our team, Lucy decided to put aside up to £20 million for future business endeavors and allocate £15 million to set up the charity in the family’s name.

Working with the J.P. Morgan Private Bank team and her other advisors, Lucy chose to diversify up to 50% of the value of her shares. This reduced her core capital requirements from £100 million in a single stock to £60 million in a combination of her single stock position and a diversified portfolio. This decision unlocked a further £40 million to allocate to excess capital, while allowing her to retain a significant shareholding in the business. Using this strategy, she’ll be able to benefit from the future appreciation of the company stock, while lowering her overall risk across her newly diversified asset base.

*Names and details have been changed to protect our clients’ identities.