Case Studies

Ownership Exit Strategy

Challenge

The ownership team of a third-generation distribution business was no longer able to effectively communicate with one another and to resolve significant conflicts, despite the efforts of previous consultants. The three owners, brothers-in-law, felt that they were stuck in this business together and were miserable.  There was a lot of confusion about their respective roles and morale had reached an all-time low, while revenues and margins were in decline despite a strong economy.

Solution

Pathway worked with the partners to identify and prioritize their respective ownership goals and objectives, which allowed the owners to communicate more effectively with one another and to identify options that met their respective and collective needs.

Results

Buy-Sell Agreements were negotiated and, after almost 40 years in the business, one of the brothers-in-law sold his interest. The two remaining partners were then able to focus on running different aspects of the business and a degree of peace returned to the family. Morale, revenues, and margins all improved!

Strategic Planning and Ownership Strategies

Challenge

While conducting a series of strategic planning meetings for a large manufacturing company, we identified significant conflict between two owners. The majority owner was an absentee owner and one of the minority owners had been running the day-to-day operations of the company for several years—and, during the planning process, revealed that he was contemplating his resignation from the company. There was no ownership exit strategy or management succession plan in place.

Solution

Pathway worked with the owners and board to develop an ownership exit strategy and strategic business plan that met the needs of all the owners, while preserving the operational integrity and financial strength of the business.

Results

The owners agreed on the direction the company needed to take over the next several years and ratified a buy/sell agreement, which led to the buyout of the majority owner.  Pathway worked with the key supplier to the manufacturer to arrange financing for a portion of the buyout which helped to facilitate the transaction. Pathway also worked with the new majority owner to implement a succession management plan.

Succession Planning and Leadership Development

Challenge

The Chairman and CEO of a large family enterprise wanted to scale back his day-to-day involvement in the various businesses, but the next generation of leaders was not yet ready to handle the complexities of running the various companies. The CEO was in his mid-sixties.

Solution

Pathway Management worked with the CEO to hire a seasoned leader with substantial experience in managing multiple profit centers simultaneously.  This individual’s role was to act as a “bridge” in leading the family enterprise on a day-to-day basis until the next generation of leaders was ready to assume the appropriate level of responsibility.  While working to hire an outsider leader we also developed a leadership development plan that would ensure the readiness of the next generation of leaders to assume greater leadership roles by a certain future date. We also designed an incentive plan for the outside leader to assure his buy-in with respect to development of the next generation of leaders.

Result

After interviewing many candidates, a bridge leader was hired and charged with running the day-to-day operations of the family enterprise, and with holding the next generation accountable for executing their respective leadership development programs. After several years the bridge manager retired as the next generation of leaders was ready to assume significantly greater leadership responsibilities in the family enterprise. During the bridge leader’s tenure the family enterprise expanded its operations in its core business lines and the CEO was able to reduce his daily involvement in the various businesses. This enabled him to use his vast knowledge and experience to capitalize on new and highly profitable ventures. As a result of executing a well-thought-out plan, the value of the family enterprise grew significantly while diversifying its various holdings and streams of cash flow.

Ownership Exit Strategies

Challenge

The sole owner of a very successful health insurance brokerage firm was ready to retire and his daughter who had spent several years in the business wanted to purchase the firm from her father. The father expected to be paid fair market value for the firm, but he didn’t want to finance the transaction.  While the daughter was willing to invest a substantial amount of her own money in the acquisition, she was not able to borrow sufficient funds from third parties to pay the full price that her father expected for the firm. The only way that she was going to be able to purchase the firm was for the father to provide a significant amount of financing.

Solution

Pathway Management worked with the daughter to develop a business plan that, if executed reasonably well, would enable the daughter to pay the full purchase price to the father over a five-year term. Pathway worked with the father and the daughter to negotiate terms and conditions of the buyout that ultimately included owner financing of 75% of the purchase price of the firm. The seller’s loan agreement included critical financial and operational triggers that had to be met quarterly in order to avoid default on the note. If a default occurred and was not cured within a definitive timeframe, the father would then exercise his rights and the daughter would lose her substantial down payment.

Result

The daughter was confident that she could perform under the conditions of the loan agreement, the father was ultimately able to become comfortable with the structure and security of the transaction, and the deal was closed. The daughter executed her plan with great precision, met the terms and conditions of the loan agreement, and paid off the note to her father within two-and-a-half years while significantly expanding the business. Most importantly, the relationship between the father and daughter improved significantly as a result of the experience because they said they approached the transaction in a business-like manner, minimizing the “family ties” issues that could have further complicated matters.