There is no faster way to destroy a company’s value than for its owners and partners to disagree on:
Growth methodologies and strategies:
- When to exit
- Operating tactics
- Prospective value in a transaction
When confronted with partnership disagreements, buyers wonder:
- Who’s running the company?
- What happens if one of the owners refuses to close or otherwise gets in the way of the deal process?
- What issues are going to arise in diligence that the owners are trying to sweep under the rug?
Companies owned by partners or shareholders often know exactly what we’ve outlined. These issues are often a reason that a company’s partners want to sell. They are frustrated by lack of growth in revenues and profits, or they have already experienced a collapse of a transaction because of fundamental disagreements among stakeholders.
Owners are often spread across too many initiatives to execute any one of them well. This can also be a frustrating source of conflict amongst the owners. We use a number of methodologies to help our clients resolve these types of issues prior to going to market.
Resolving Growth Strategy Disagreements
When leadership or ownership disagree on how to grow a business, the result can be stagnation or drift. All the parties involved will have different motivations for why there is disagreement, but it’s of paramount importance to understand what those motivations are and solve them.
Our strategic planning process is fully inclusive — it engages the entire leadership team and requires alignment on direction from all parties. We spend time with the team members individually and as a whole to understand and evaluate what opportunities exist for growth. The most highly valued growth stories focus on higher-margin, repeatable opportunities that scale operating profit faster than revenue growth.
The planning process we conduct offers the crucial benefit of team building around the opportunities and tactics to execute those opportunities. It brings together all stakeholders, including partners and owners, to reduce conflict and focus the group on the specific activities that will create revenue, profit, and value. We create procedures for accountability to hold individuals and the group to goals with specific data measurement.
Solving When to Exit Conflicts
Owners often have different motivations for considering an exit. Often it stems from looming retirement, lack of succession planning, fatigue, age differences, or diverging time horizons. Conflict can arise when one owner is experiencing burnout while another remains committed to building the business. It can occur because the partners no longer get along.
When such situations occur, particularly when there aren’t legal agreements in place to accommodate such issues (e.g., a “Buy-Sell” Agreement), we urge owners to proactively address these issues by engaging legal counsel to put the right agreements in place before the problems become acute.
The most expedient solution when time frames aren’t aligned is for one partner to buy out the other. While easy to conceive of such a solution, the details of the transaction involve many issues, legal, valuation, funding to make the purchase and post-closing involvement of the selling party, to name a few.
How to Resolve Operating Tactical Challenges
Even if the growth strategy is resolved, how to implement that strategy can often lead to disagreement, particularly if there’s a large capital expenditure required.
We help our clients consider what each strategy will entail to implement, the resources required to begin the implementation and how it could impact growth and capabilities of the organization. It’s important for all parties to agree on the path forward together during a leadership team meeting.
Prospective Value in a Transaction
As noted earlier, it is equally important for partners to be aligned when to exit. For the same reasons outlined above, it’s equally important for them to have agreement on value to exit. This is particularly vital as a common issue for companies is that owners either don’t know the value of their company or believe it is worth more than the market will offer.
Long before taking the company to market, we help our clients conduct a Market Check process. This is done by outlining a company’s story with good fit investment bankers and financial sponsor investors to discern appropriate multiples and other key investment considerations. Once complete, our findings enable the owners to realistically anticipate transaction results, and/or implement strategies to help them bridge any discrepancies between expected and realistic results.