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How BPM Helped a Company Co-owner Secure a $500,000 Buyout Loan

09.01.15

Situation

Two owners of a Bay area manufacturing company had agreed to operate their business on equal terms. However, only one was actually interested in actively leading the business, while the other had taken a back seat and become inactive in the day-to-day operations. 

As a result, the active owner wanted to buy out the inactive owner. However, the inactive owner was reluctant to sell, as he was making money from the business. 

The failure to agree on a course of action was creating tension between the co-owners, who were also friends. Even once they agreed that it was in the best interest of the business to consolidate ownership under a single, involved owner, they deadlocked over how to move forward. Both worried that face-to-face negotiations could turn contentious and permanently damage their friendship, so they decided to let their representative accounting firms handle negotiations. 

BPM, representing the active owner, was tasked with negotiating selling terms that were favorable to the client. While willing to sell, the inactive owner was concerned that the active owner didn’t have the cash to buy him out, so he insisted the buyout price be paid within 90 days. If that didn’t happen, the sale would be null and void. 

He was right. The active owner didn’t have the cash on hand and needed to secure financing to complete the deal. Further complicating matters, he had no track record and no assets outside of the business, making it difficult to find a willing lender. 

How We Helped

BPM began by formulating a valuation of the business, which both the client and the inactive owner agreed on. With that hurdle cleared, BPM put together a loan package and began contacting a variety of lending institutions, from nonprofit lenders and credit unions to traditional banks. 

The size of the sale made it difficult to find a match. It was too big for many community banks but too small to attract large commercial banks. 

BPM fought through a number of rejections to identify five lenders willing to compete for the loan — two nonprofit lenders, a credit union, a local bank and a national bank. 

After reviewing offers, BPM secured a $500,000 loan with the local bank on the final day of the 90-day window. 

Throughout the lender-vetting process, BPM worked with lenders who wanted to see the company’s tax returns and financial statements, and the personal tax returns of the active owner. BPM acted as both a negotiator and information resource for those interested in financing the deal. 

Results

As a result of the buyout, the company is now a vibrant business led by a single, actively involved owner. By serving as a facilitator, negotiator and resource, BPM helped the buyer and seller conduct a smooth passing of the torch, enabling the company to continue growing and thriving without missing a beat. 

Buying out a partner can be a difficult task, as illustrated by this case study. Money disputes can jeopardize not only working relationships, but also long-standing friendships. That’s why it’s important to work with professionals who can help guide you through the challenges presented by a buyout.