Exit Engineering for a Partnership Buyout

March 11, 2020Insights

Every exit has unique dynamics that dictate our approach in engineering a successful sale. In this series, we explore challenges and solutions to common situations.

When Business Partners Split

It can be bitter, sweet, or a combination of the two. What we know for sure is that just as no two partnerships are alike, each partnership exit is unique. Engineering a successful business exit requires an ability to think through and around problems. Furthermore, working with family members, spouses, and longtime business partners calls for an abundance of emotional intelligence. Our approach includes both; we enter each client meeting with the understanding that:

 

Emotions Are Everything

The emotional environment is key to designing an exit that works for all parties. Are the partners in a good place, or are they feuding? Is the company making money, or is it struggling? There are certainly advantages to an amicable underlying sentiment and a stable business. The question then becomes, are they going in the same direction? Where a conflict exists, we simply need to address it—not try to tip-toe around it. Emotion is one of the most trying factors in selling any business, especially one that includes multiple partners.

 

Partner Roles Are Critical

Sometimes, business partners work together in such a way that one could conceivably continue to run the business on his or her own. Others work in one area of the business that is crucial to the company’s success and, therefore, indispensable; for example, when one partner drives 90 percent of sales and another runs daily operations. During a partnership buyout, we consider projected performance post-close, without the partner(s), to determine whether and how to separate the company.

 

Deal Price and Structure Are Crucial

In many cases, partners disagree about price, creating an opening argument. The deal structure can become a point of contention as well. Buying out a partner with company profits can leave the business depleted for the remaining partner(s). If the business doesn’t have profits to draw from, successfully engineering the sale entails increased creativity.  

In any event, we know one thing: failure is not an option. We have to make it work—for the partners, for their families, and for the business. It is so much more than a split; it is Exit Engineering on a human level. We are every bit as ready to mediate as we are to orchestrate.