Don’t Conflate a Deal’s Headline Number with Your Family’s Bottom Line Result

“I sold my company for $1billion.”

I’m not saying this isn’t a great accomplishment, but it’s a weird, arbitrary line in the sand that may simply optimize a healthy ego more than anything else. Having been involved in dozens of transactions (along with hundreds of varying “up” and “down” valuation rounds), I always find it interesting what people focus on. And, as the old adage goes “It’s not what you earn, it’s what you keep.” Let’s dive in a bit here.

As you know, you can’t “spend” your headline number. You can only enjoy what flows to your personal, bottom-line. At Corient, we often find that these two numbers get jumbled together in a founder’s mind. In addition to many personal planning techniques we will discuss shortly, it’s worth noting that a well-structured deal can also provide a founder with “bottom line” impact that is more than meets the “headline” eye. Quick example:

Deal headline in the press: $900 million sale

Here are some details not captured in the headline:

• Two founders own 10% each—so for simplicity, $90 million of gross proceeds for each founder.
• The deal includes financial incentives only for the two founders that provide a potential additional $20 million each. This results in a potential total consideration from this deal of $110 million to each founder.
• That $110 million, at their 10% stake, would amount to a deal being done at $1.1billion (or a ~22% premium over the reported deal “headline” number).

So, while the world saw $900 million as the headline, the founders “felt” the deal transact at $1.1 billion to their bottom line.

Rounding things out is the other side of this equation. Sometimes founders sell a company where there is a real headline number, let’s say $100-$250 million, but they make nothing, or close to it. In those scenarios, the world around you—friends, family, your fellow founder community—all think you are now “wealthy,” as you sold a company for a significant amount. But the financial bottom line to your family remains largely unchanged and can create awkward expectations around angel investing, community support (i.e., charity), joint vacationing, etc.

At Corient, having co-piloted 100+ founder’s journeys through liquidity events, we always look to educate founders on what they can do to create flexibility and optimization for what flows to their family’s personal “bottom line.” In fact, we often say that proactive planning techniques can provide an impact to the bottom line that is equivalent to a multiple expansion at the company deal terms in an exit. Subsequently, topics that always flow to the forefront in our conversations at Corient are things like:

• Where are you living these days? Have you heard of the 30-day rule? The 548-day rule?
• While you may not be able to redomicile to a more tax advantaged state, would you like to learn more about how to redomicile some of your equity?
• Did you start as an LLC or a C-Corp? There may be a basis play in your QSBS exemption we should discuss.
• Do you have any unexercised options? If so, and if your company still has less than $75 million in assets/liabilities, you may want to exercise them as, thanks to the One Big Beautiful Bill Act or OBBB, they may now qualify for QSBS exemption (and may fit within the new holding period sliding scale that starts at year three).
• All things being equal, are you charitably inclined if this exit happens? If so, would you consider giving money to charities that matter to you—especially if it could only “cost” you $0.30 of your balance sheet for every $1.00 you give away?

We find it super important to highlight these types of topics throughout the founder journey—especially around fundraising rounds and when deal talks begin to heat up. Consider that there are also many factors that come into play as to how headline deal numbers flow into a founder’s proverbial bank account. Things like:

• Did the founder employ any advanced income/estate planning techniques that allowed for multiple QSBS exemptions, if applicable?
• How much of the deal did the founder need to “roll” into the acquirer’s company stock? And will the “roll” be considered a tax-free reorganization that allows for some element of QSBS going forward?
• If it was a private equity deal, how much was the founder able to take out?
• Did the founder have a management carve out on top of the equity ownership?

It’s worth noting that once you sign a definitive agreement, a lot of the strategies mentioned above will no longer be available. This is what we affectionately refer to as “the point of no return” for many planning techniques since capitalization table “assignment of income” to the shareholders has already taken place at that point.

Again, don’t conflate the deal headline with your personal bottom line. At Corient, we have been co-pilots on every type of journey—including ones where an impressive headline created false expectations for what flowed to the bottom line.

Speak to a Corient Wealth Advisor to discover the difference proactive planning may make to your bottom line as we have experience helping you at every step along your wealth journey.

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