Business Exit Planning

Helping Jason Master the Art of Business Sale with Multiple Partners

The Story

Jason was an entrepreneur and one of the three partners of a successful company that thrived for over a decade. Their business was an industry leader, boasting impressive profit margins largely attributed to their efficient operating systems and exceptional performance. They owned and operated four successful locations, complete with real estate assets, making them a coveted prospect for potential acquirers.

Jason and his two partners faced two major challenges as they contemplated the sale of their thriving business. First, each location had minority equity holders who had invested during the startup phase. Some of the operating agreements required their approval for a sale event, adding a layer of complexity to the negotiation process. Secondly, the three partners had varying post-sale priorities. While one partner wanted to stay on with the acquirer in a similar role, another aimed to offer consulting services without a long-term commitment. The remaining partner was set on exiting to explore new ventures.

As Jason and his partners embarked on the journey, our first step was to ensure that each partner had a crystal-clear understanding of their minimum acceptable deal size and structure to align with their post-sale objectives. We considered likely deal structures based on prior conversations with potential acquirers and worked closely with their tax advisors to evaluate the financial implications of sample deals.

We found that the deals they were most likely to encounter were cash-based, though stock inclusion is not uncommon in such situations. Each partner had unique financial thresholds, including considerations for upfront cash and deferred payments, allowing them to match personal goals with potential deal structures.

This preparation proved to be invaluable during the negotiation process. As expected, some minority partners hesitated to approve the preferred deal structure put forth by the partner group. In response, Jason and his partners, now armed with a clear understanding of their financial boundaries, were able to negotiate effectively and make financial concessions to secure approval. Their non-emotional approach was rooted in knowing the precise figures needed to reach a deal that met everyone’s personal goals.

The second challenge emerged as the acquirer decided they no longer required the services of the partner who wished to stay on board post-acquisition. Although it was a tough decision, the financial implications had been thoroughly understood, which allowed the first partner to accept that their skills were no longer in demand. However, with their personal financial needs met, they were free to explore new career opportunities.

The partner who preferred a consulting role secured the financial benefits and flexibility they sought via a one-year consulting contract. The remaining partner who wanted a clean exit successfully redeemed their equity value and transitioned into exciting new ventures.

Jason’s story highlights the importance of exit planning with clarity, ensuring that personal financial needs align with deal structures and time commitments. By having a thorough understanding of their financial boundaries, the partners were equipped to navigate complex negotiations, meet their diverse post-sale goals, and they all remain good friends to this day. Entrepreneurs like Jason can successfully navigate the challenging path of selling a business when they understand their needs and requirements with precision.