“I love my wife dearly, I know we will never think about divorce, but that would be easier than ending this business relationship.”

I felt sorry for Madison and his business partner Wendall (not their real names). Successful in business for over 25 years, they are now at an impasse that doesn’t have an easy solution. Madison wants out of the business so he can pursue his calling to foreign missions with his church. Wendall loves the business and wants to work for another ten years.

There is no animosity between the two. They get along well and are mutually supportive of each other’s objectives. The problem is how to fund Madison’s exit.

Given the operating characteristics of the business, selling Madison’s interest to private equity, who could come alongside Wendall and grow the business, makes all the sense in the world. There are scores of PE groups I could call today if that was the preferred solution. But Wendall is telling me if he’s going to stay in business, he wants to do it alone. So that leaves us with the challenge of funding Wendall’s purchase of Madison’s interest.

By way of context, Madison’s 50% interest is valued in eight figures. Wendall isn’t all that keen on taking on a bank loan in that amount; even though the business is doing very well, that’s a lot of debt! On the other hand, Madison isn’t all that keen on getting paid out via a seller loan. “While I trust Wendall completely, I know if he is paying me out over 10 years or so, I’d be worried the whole time. If I’m going to sell, I want to walk away from all that,” Madison said while the three of us kicked around solutions. “If we were a married couple getting a divorce,” Wendall added, “we could just go have a court tell us what to do.” We all chuckled at that idea, though we all knew he was right. 

This story doesn’t have a bow on it yet. I certainly don’t have an easy answer, nor does their partner buy-sell agreement provide any direction. Of course, there is one fell-swoop solution, and that is for Wendall and Madison to sell the company entirely. I’ve counseled Wendall to expect he could stay to run the company post-sale for a short period, maybe two to three years. But once you’ve been an entrepreneur for 25+ years, to turn around and overnight become a loyal employee is not a logical or comfortable solution. 

To be continued, just not sure when ….

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Tennessee Valley Group

Jim is an attorney (non-resident status with the Missouri Bar) and though he no longer practices law, he has read and negotiated enough legal documents to fill a cargo tanker. He has an MBA from Harvard Business School and knows how Wall Street and private equity operates. Jim is a Tennessee Supreme Court Rule 31 listed general civil mediator with tons of experience helping business owners (large and small) work through sensitive problems to achieve winning results. He is the author of "Home Run, A Pro's Guide to Selling Your Business, Seven Principles to Make Your Company Irresistible."

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