buying out multiple owners with differing payouts
May 21, 2021
by a searcher from University of Pennsylvania - The Wharton School in Miami, FL, USA
Hello SF
I am looking at acquiring a business with 4 equal owners.
3 are willing to sell at a certain value - call it X.
The 4th is willing to sell at a higher value X+1
Per operating agreement, all 4 owners need to agree on a deal.
Has anyone closed a deal where they bought out multiple equal owners at different valuations at the same time? - weird I know?
Is this possible from a tax standpoint? Any insight would be super appreciated!
from Texas A&M University in Johnson City, TN, USA
Have you considered keeping the 4th owner, rollover equity? Or adding right to buy at same price but after another year (adds 1x to their exit by letting them get another year's earnings in)?
Assuming you get 51% plus and control with the other shares?
If they roll, pay super close attention to shareholders agreement, you will not want them holding you back in future for the same reason! Make sure you understand any tag along, drag along, shotgun rules.
In theory, you can pay for shares how you want (so your proposal is possible), but their shareholders may need to approve the purchases per Shareholders Agreement. But your financing options may cause limits.
If you have shareholders participating in transition, they will likely find out about the differing exit values. If so, are they OK with this? Could sow discontent.
from University of Nebraska in Austin, TX, USA
Or buy the shares of the 3 who want to sell (acquiring 75% of the company), all you would need is approval for the shares at that lower price from that 4th. But then you’re probably stuck with a crappy partner based on 3/4 wanting to leave the biz and him behind, and that holdout owner thinks it’s worth materially more (sounds like holdout owner may may have inflated ego syndrome). May also screw up financing options like SBA if that’s part of the deal.
Good luck on this one!