Partner Buyout Guide

Why Partner Buyouts = Gold

50% of partnerships fail within 5 years
Emotional sellers = better prices
Inside knowledge reduces risk
Financing often built-in
No broker fees or competition

Finding Partner Discord

Approach Strategies

Strategy 1: The Direct Approach

When to use: You have relationship with one partner

The script:

"I've been watching your business for a while. If you or your partner ever want to exit, I'd be interested in buying. I can be flexible on terms and make it easy for whoever wants out."

Follow-up questions:

"How aligned are you two on the future?"
"What's your 5-year plan?"
"Ever think about doing your own thing?"

Strategy 2: The Mediator Play

When to use: Partners are fighting

Position yourself as solution:

Offer to buy out either partner
Let them decide who stays/goes
Create competition between them
Be the "neutral" solution

Result: Lower price as both want quick resolution

Valuation in Partnership Situations

Traditional Business Valuation

Business Value = EBITDA × Multiple $500k EBITDA × 4x = $2M value 50% stake = $1M

Partnership Discount Reality

Start: $1M (50% of $2M) - Minority discount: 20% ($200k) - Lack of control: 10% ($100k) - Emotional exit: 15% ($150k) = Actual price: $550k You pay: 55% of fair value!

Deal Structure Options

Financing Partner Buyouts

Structure	Best When	Benefits	Risks
Buy 50%, become partner	Other partner is good operator	Lower capital needed	Still have partner
Buy 50%, then buy rest	Need time to raise capital	Staged risk	Second price negotiation
Buy 100% from both	Both want out	Full control immediately	Most capital needed
Three-way partnership	Can't afford buyout	Minimal capital	Complex dynamics

Creative Financing Strategies

1. The Company Buyback

Company buys shares, not you
Use company cash flow
Tax advantages for seller
You buy remaining 50% later

2. Earnout Structure

Pay 30-50% upfront
Rest based on performance
Seller stays on temporarily
Protects against downturn

3. Cross-Purchase Agreement

Life insurance on each partner
Death triggers buyout
Disability riders included
Pre-negotiated price

Legal Considerations

⚠️ Critical Legal Issues

Review These Documents First:

Operating/Partnership Agreement
Buy-sell provisions
Right of first refusal
Transfer restrictions
Valuation formulas

Common Restrictions:

Must offer to partner first
Predetermined price formula
Approval rights on buyer
Non-compete clauses

Negotiation Tactics

Psychological Leverage Points

For the "Tired" Partner:

"You've built something great, time to enjoy life"
"Let me handle the stress while you cash out"
"Your family deserves more of your time"

For the "Ambitious" Partner:

"This is holding you back from bigger things"
"Take this capital and build your vision"
"Why split profits when you could have 100%?"

For Fighting Partners:

"This conflict is destroying value"
"Better to split now than lose it all"
"I can close in 30 days, end this stress"

Case Study: Plumbing Partnership Split

From Discord to $800k Profit

Situation:

Two partners, 50/50 plumbing business
$3M revenue, $450k EBITDA
One wanted growth, one wanted lifestyle
Fighting was affecting employees

Approach:

Met "growth" partner at trade show
Learned about partnership friction
Offered to buy either partner out
Let them fight over who stays

Deal Structure:

Bought "lifestyle" partner for $400k
Terms: $100k down, $300k over 4 years
Worked with "growth" partner 18 months
Grew to $5M revenue, $750k EBITDA
Bought remaining 50% for $1.2M
Total invested: $1.6M
Sold business for $3M one year later

Profit: $1.4M in 30 months

The Partnership Agreement Audit

What to Look For

Provision	Good for Buyer	Bad for Buyer
Valuation method	Book value or fixed formula	Fair market value
Payment terms	Extended payout allowed	Cash only requirement
Transfer rights	Free transferability	Unanimous consent needed
Compete clause	None or limited	Broad restrictions
Trigger events	Many (death, disability, etc)	Few or none

Post-Buyout Integration

First 90 Days With Remaining Partner

Week 1-2: Establish New Dynamic

Define roles clearly
Document decision rights
Set communication cadence
Address employee concerns

Month 1: Quick Wins

Implement stalled initiatives
Show value you bring
Build trust with actions
Celebrate early successes

Month 2-3: Plan Future

Align on growth strategy
Discuss eventual exit
Set buyout timeline
Document new agreement

Common Pitfalls to Avoid

Don't Make These Mistakes

Picking sides too early: Stay neutral until deal done
Overpaying first partner: Save capital for second buyout
No written agreement: Document everything immediately
Ignoring employees: They'll pick sides, manage carefully
Moving too slow: Partnership disputes escalate fast
Assuming rationality: Emotions drive these deals

Advanced Partnership Strategies

The "Squeeze Play"

Buy minority stake, then force buyout:

Buy 25-49% from one partner
Create deadlock situations
Make remaining partner miserable
Force them to sell at discount

Aggressive but effective with weak agreements

The "White Knight"

Save business from partnership destruction:

Wait for major fight/lawsuit
Approach both partners
Offer quick, clean exit
Buy entire business at discount

Partnership Buyout Checklist

Complete Due Diligence List

Legal Review:

□ Partnership/operating agreement
□ Buy-sell provisions
□ Corporate minutes
□ Existing lawsuits
□ Employment agreements

Financial Analysis:

□ Each partner's contributions
□ Distribution history
□ Hidden personal expenses
□ Off-balance sheet items
□ Related party transactions

Operational Assessment:

□ Who does what daily
□ Key relationships owned by whom
□ Employee loyalties
□ Customer preferences
□ Vendor relationships