What Are Your Options?
When you and your business partner started in business you thought you’d always be on the same page with regard to running the business and your long-term goals. But life happens and people’s circumstances change. You may have thought you’d have the same exit timeline, but you might find yourself in the circumstance of saying, “my business partner wants to sell our manufacturing company, but I’m not ready to retire.” What are your options in this situation? Do you have to sell? In this article, we’ll examine some options you might not know you had.
As an M&A Intermediary, selling nationally and exclusively within the manufacturing sectors, I’m contacted each year by manufacturers all over the country in this exact predicament. Here are two recent stories of manufacturers we worked with to help each partner achieve their desired result. The outcomes were different and influenced by age and risk tolerance, but each will help you understand the possibilities.
One Partner Wants a Quick Exit – The Other Also Wants Liquidity But Wants To Continue Working For Several Years
The first client was an award-winning fabricating company, known for everything from work on infrastructure to elaborate art pieces for iconic buildings around the country. The company was run by two men, not related to each other. One managed the manufacturing process, and the other was the sales arm of the business. Their different focuses and expertise are what made them very successful over the years. The operations-focused business partner had a grandchild that was diagnosed with cancer. With several other children in the family that needed care, the grandparents needed to step in to support their son and his family. While admirable, this led to chaos in the company and stress between the partners, as the team tried to navigate the absence of one of the owners.
The sales-focused partner still had a child in college and was simply not ready to exit the business. Because he himself was approaching retirement years, the thought of borrowing money to buy out the business partner was not appealing. He viewed it as too risky at his age.
For one partner, the ideal situation was a buyer that would not require a long transition so that he could have the precious time needed to help his son and family navigate the unthinkable. For the other partner, the ideal situation was to have a liquidity event but have a buyer that would welcome his involvement for at least five more years. It was at this stage that we got the call, “my business partner wants to sell our manufacturing company, but I’m not ready to retire.”
In this case, we found a buyer who had run fabricating plants for larger companies. He was operationally focused, so a good replacement for the exiting business partner. Not being sales-focused, he welcomed the extended involvement of the other partner, who also got the full liquidity event he wanted to secure his retirement, but he still got to work in the business he loved and ensure that the much younger new owner would be successful, and the operation would remain in the community.
One Seller Exits, While the Other Maintains Some Equity
The second client had a very different result. This was an ultra-modern CNC and robotics plant primarily serving the agriculture equipment and hydraulics sectors. When the older of the two indicated he wanted to retire, the younger offered to buy him out. At only 39 years old and with young children, there was no way he was ready to sell. The problem is that the older of the two partners wanted a price that the younger was not willing to pay. When they couldn’t come to an agreement on price, they began searching for a manufacturing M&A specialist. They quickly determined that Accelerated Manufacturing Brokers, Inc. had the skills and audience they needed.
We went to market with the option of selling the entire company, or obtaining a business partner for the younger, allowing the elder to exit. As we went to market, the younger was not entirely sure how he wanted the transaction to play out. After vetting several hundred candidates, we brought only six in for plant tours. Five of the six made attractive offers. Among these offers were complete buyouts and opportunities for the younger to maintain some equity. Ultimately, they went with a buyer who provided a full liquidity event to the older business partner and a partial liquidity event to the other. If the company that made the acquisition repeats their prior successes, the younger partner will eventually have a second liquidity event to rival the first. Again, each business partner got exactly what they hoped for. The price achieved was more than either of them thought possible, and we did it in a record-setting six months’ time, from listing to closing.
If You Give Up Equity, Make Sure You Get What You’re Lacking
A word of caution. If you want to maintain equity, you need to know with certainty the morals and ethics of those you’re partnering with. If they’ve purchased other manufacturing companies, ask to speak with prior sellers. Understand whether the company remained in the community and if the workers had continued employment. Additionally, if you’re taking on a business partner, make sure they have a skill set that complements yours. If sales and marketing are what your organization is lacking, aim for a partner that excels in those functions.
The bottom line is this. If your business partner wants to sell your manufacturing company, but you’re not ready to retire, you have options. Reach out to us today to learn more HERE.