When Shareholders Can’t Get Along (Part 2)

business04In my last blog post, I explained how the shotgun clause can be used to separate shareholders that are no longer getting along. The shotgun clause can be an effective way of avoiding litigation and providing a clean split between the warring parties.

How does the shotgun clause work? Generally speaking, it provides that one shareholder may make an offer to buy the other shareholder’s interest at a price set by the shareholder making the offer. However, the interesting twist is that having made the offer to buy, that shareholder is also deemed to have offered to sell their interest at the same price and on the same terms as the offer to buy. So it is left up to the shareholder receiving the offer to determine whether or not they want to sell their interest or buy the interest of the other shareholder. This has the effect of making the offering shareholder think carefully about the price. If they make a lowball offer, they may end up being bought out at that low price! Continue reading

When Shareholders Can’t Get Along

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Many privately owned businesses have more than one owner. This can be beneficial to a business, but it also poses its own problems. Sometimes one or more of the parties realizes that the partnership is not working which leads to dissention and conflict. What options are there for individuals facing this scenario? Continue reading

Business Succession – Learn from the Errors of Others (Part 2)

business02Whether a business is worth $1 million or $100 million, the same principles apply when it comes to business succession.   After many years of experience in private company succession (and with over a third of a billion dollars of transaction value behind me) I see business owners falling into the same predictable patterns time and time again.

It’s understandable because while business owners are skilled at business operations, they have little experience in succession planning. After all, most business owners will sell or transition out of a business only once. Let’s take a look at some more of the key lessons to be learned (see Part 1 here). Continue reading

Business Succession – Learn from the Errors of Others

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Whether a business is worth $1 million or $100 million, the same principles apply when it comes to business succession. After many years of experience in private company succession (and with over a third of a billion dollars of transaction value behind me) I see business owners falling into the same predictable patterns time and time again.

It’s understandable because while business owners are skilled at business operations, they have little experience in succession planning. After all, most business owners will sell or transition out of a business only once. Let’s take a look at some of the key lessons to be learned. Continue reading

The Staged Buyout

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When it comes to succession, some business owners prefer to pass the business on to their employees. Instinctively, they know that this can be a very risky way to transition the business. On the other hand, they like the idea of passing on the business to employees because these are the very people that helped to make the business a success. I assist many business owners with planning and executing tailored business succession strategies.  In particular, one method I have used successfully is what I call the staged buy-out process. In that process I consider three critical elements. First, the need for the business succession plan to create an alignment of interests between the owner of the business and the proposed successor. Second, the need for the business succession plan to set measurable milestones to ensure that the proposed successor has financial targets to meet that will generate the income needed to buy the owner’s interests in the business. Third, the need for the business succession plan to provide “escape hatches” that will allow the owner to unwind the buyout if things were not working out as planned. When these critical elements are present, the likelihood of a good result is increased. Continue reading

The Standstill and Exclusivity Agreement

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When a business succession plan involves the sale of the business to a third party, the buyer is often concerned about staying out of a bidding war. Of course, the buyer wants to avoid a bidding war to ensure that the price is not bid up. Therefore, a buyer will often request the seller to enter into an exclusivity and standstill agreement, sometimes called a “no-shop” agreement. Clearly, if the seller is not subject to a standstill agreement, the buyer may find that there are other buyers in the wings and therefore there is more pressure to increase the price and close the deal quickly. This situation will favour the seller and the smart buyer will therefore ask the seller to sign a standstill agreement to ensure this does not happen. Continue reading

The NDA (or Confidentiality Agreement)

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If you are thinking about selling your business, you should be aware of the heightened need these days for protection of private information. I am constantly surprised by the amount of private information business owners are willing to supply to prospective purchasers of their business. Unsophisticated sellers often allow potential buyers access to highly confidential information, without ever considering that they may be giving up business secrets for free. As a seller, you should never allow anybody to access your confidential information without first having them sign a confidentiality agreement. Continue reading

The M&A Advisor

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If you are selling your business, you have a number of choices on how to market your business for sale. You can try to sell it yourself (“for sale by owner”) or you can use an M&A advisor (also sometimes referred to as a “business broker”) to sell it for you. Why not simply try to sell the business yourself? The clear benefit is that you save on commission and that can be quite a large savings. However, I do not recommend the “for sale by owner” method for many reasons. Continue reading

Is it Time to Restructure?

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Previously, I blogged about a client that took my advice and cleaned up the share structure of his business even though at the time the business was not doing well financially. In that case, the client wanted to eliminate some minority shareholders and on my advice used the circumstances to his advantage. However, eliminating minority shareholders isn’t the only strategy to use in tough financial times. There is another strategy for future planning that you can use to your advantage in these circumstances.

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Succession and Minority Shareholders

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I help many business owners with their business succession planning and as a result I run into many different situations. Sometimes the owner is ready to sell the business and just can’t wait to retire. Sometimes the owner is nowhere near retirement and doesn’t want to even discuss succession. Then there are those business owners that are going through tough times and tell me they just don’t have time to plan for succession. Rather, they want to focus on “righting the ship” and don’t want to think about exit until they have re-built the value of their business.  In these circumstances, I point out that if the business has not done well in the last few years, there is still an opportunity for some serious planning. Even in bad times, opportunities exist, although they might not be so obvious.

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