Buy-Sell Agreements -- Time to Review

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Corporate Buy-Sell Agreements:Ticking Time Bombs or Reasonable Resolutions?

Z. Christopher Mercer, ASA, CFAMercer Capital » 901.685.2120 » [email protected]

Celebrate the Past…Focus on the Future

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You’ll never think about buy-sell

agreements the same way again

after this presentation

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Three Things To Remember Today

1. Getting Agreement Now! • It is vital to get agreement among the parties now

2. Six Defining Elements

• There are six defining elements that must be in every buy-sell agreement if you want the valuation process and, therefore, the agreement, to work

3. Buy-Sell Audit Checklist

• We have a tool that can help you and/or your clients. Whenever you encounter a buy-sell agreement, you want to review the checklist while you review the buy-sell agreement

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1.Getting Agreement – Now

2. The Six Defining Elements of Process Buy-Sell Agreements

3. The Buy-Sell Audit Checklist

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Getting Agreement -- Now

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Getting Agreement – Now

• Buy-Sell Agreements are agreements by and between the shareholders (or equity partners of whatever legal description) of a privately owned business and, perhaps, the business itself

• They establish the mechanism for the purchase of stock following the death (or other adverse changes) of one of the owners

• In the case of corporate joint ventures, they also establish the value for break-ups or for circumstances calling for one corporate venture partner to buy out the other partner

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Getting Agreement – Now

1. Require agreement at a point in time

2. Relate to transactions that will or may occur at future points in time

3. Define the conditions that cause the buy-sell provisions to be “triggered”

4. Determine the price(s) at which the specified future transactions will occur

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Remember This

• For professional advisors to business owners:– Use the almost universal need to improve buy-

sellagreements to help your clients and other

referralsources

• For business owners:– Get the buy-sell agreement

– Read it

– Review it with other shareholders and advisors

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1. Getting Agreement – Now

2.The Six Defining Elements of Process Buy-Sell Agreements


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The Six Defining Elements of Process Buy-Sell Agreements

1. Standard of Value 4. Qualifications of Appraisers

2. Level of Value 5. Appraisal Standards

3. The “as of” Date 6. Funding Mechanism

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Types of Buy-Sell Agreements

1. Fixed price agreements

2. Formula agreements

3. Shotgun agreements

4. Rights of first refusal (ROFR)

5. Process agreements

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1. Fixed Price Agreements

• Advantages

–Easy to understand

–Easy to negotiate

–Inexpensive

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• Disadvantages

– Parties seldom update the fixed prices, even over periods of many years

– Inequities are almost certainly a result of out-of-date fixed price agreements

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• Disadvantages (continued)– While it is easy to set an initial price (indeed, it may

be set by a transaction), it can be difficult to reset as time passes and interests diverge

– The longer period of time between updates to fixed price buy-sell agreements, the greater the potential for a divergence of the interests of the various parties

– You are betting that the other guy(s) will die first!


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Out of date when inked! Need I say more?

Recommendation:If you have one, update it now!

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2. Formula Agreements

• State a single formula to be applied to balance sheet and/or income statement metrics

• Examples– Multiple of EBITDA – (5 x EBITDA)

– Multiple of Pre-tax Income – (6 x Pre-tax Income)

– Book Value• “Shareholders’ equity per the audited financial statements at

the end of the fiscal year immediately preceding the valuation date.”

– Multiple of Book Value

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• Advantages (like fixed price agreements)– Easy to understand– Easy to negotiate– Inexpensive (no appraisers)

• Disadvantages– No formula selected at a point in time provides

reasonable and realistic valuations over time – Changes occur in companies, industries, local,

regional, national and world economies, some or all of which can impact the “true value” of an enterprise relative to any set formula

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Recommendation

If you have a formula agreement, have someone calculate the formula result as if there

were a trigger event now

And then deal with any issues that arise


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3. Shotgun Agreements

• One side makes an offer

– Other side has choice to sell at that price

– In the alternative, if other side decides not to sell: • May have the right to buy• Does have the obligation to buy

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• Concept is that the initial offering side (which

will that be?) virtually has to name a

“reasonable” price, i.e., one at which he would

be willing to buy or sell

• Assumes both parties have equal financial

capacities and knowledge about the business

and its prospects to engage in either a buy or a

sell transaction

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• Advantage– Pressure on offering party to establish a “fair” price

• Disadvantages– Parties seldom have equal financial capacities and

may have different knowledge about the business

– Minority shareholders may be at a disadvantage • Easier for a 90% shareholder to acquire 10% than vice-versa

• Smaller shareholder, unable to swing the big deal, may have to offer lower price than “fair” in order to insure capability to either buy or sell, and therefore, receive a lower price on sale

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4. Rights of First Refusal• Absent any other provisions, a right of first refusal

agreement may act like a buy-sell agreement

– Third party offer obtained by one shareholder

– Who has to offer shares to the other shareholders (time passes) and, perhaps, the company (time passes)

– If the other shareholders or the company do not buy on the same terms and conditions, then the third party may purchase the shares

– If third party purchases, normally becomes subject to the ROFR agreement

– If no one buys, there was no transaction

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4. Rights of First Refusal

• Advantages– Simple and requires little thought

• Disadvantages– ROFRs actually act as restrictive elements

• Discourage third party bidding

• Favor the remaining shareholders who will take advantage of low offers and ignore high offers that are unlikely to be forthcoming

– Not really buy-sell agreements at all, since there is no assurance that there will be a transaction

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5. Process Buy-Sell Agreements

• A buy-sell agreement provides a valuation process employing one or more appraisers

• Value is determined by the appraisers in a manner defined in the buy-sell agreement

• Two types of process buy-sell agreements:– Multiple appraiser

– Single appraiser

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Multiple Appraiser

Agreement

Two and a Tie-Breaker

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Multiple Appraiser

Agreement

Two and a Determiner

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Multiple Appraiser

Agreement

Two and a Back-Breaker

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Multiple Appraiser

Agreement

Two and Let’s Talk

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Multiple Appraiser Agreements

Advantages1. Provide a defined structure

2. All parties know, at least generally, what the process will be in advance

3. Fairly commonly known and generally understood by attorneys (who know the problems with fixed price and formula agreements)

4. Illusory Benefit – False sense that “my appraiser” will protect “my interests”

Disadvantages1. Price not determined now2. Potential for dissatisfaction with the

process for all parties3. Danger of advocacy4. Uncertainty over what happens at trigger

event 5. Uncertainty over final price if the process

is invoked6. Problems with any other aspect of the

operation of the agreements are deferred until a trigger event

7. Expensive8. Time-consuming9. Distracting for management10. Potentially devastating for affected

shareholders and their families

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Single Appraiser

Agreement

Select & Value at Trigger Event

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Single Appraiser Agreement Select & Value at Trigger Event

Advantages

1. Defined Structure

2. Considerable uncertainty is eliminated upon agreement

3. Cost is reasonably known

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Single Appraiser Agreement Select & Value at Trigger Event

Disadvantages

Single Appraiser – Select & Value at Trigger Event

1. Price not determined now x

2. Potential for dissatisfaction with the process for all parties x

3. Danger of advocacy x

4. Uncertainty over what will happen when a trigger event occurs x

5. Uncertainty over final price if the process is invoked x

6. Problems or issues with definition of value, qualifications of appraisers, or any other aspects of the operation of the agreements are deferred until a trigger event – when the interests of the parties are adverse

x

7. Expensive

8. Time-consuming

9. Distracting for management

10. Potentially devastating for affected shareholders and their families

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Single Appraiser

Agreement

Select Now & Value at Trigger

Event

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Single Appraiser Agreement Select Now & Value at Trigger Event

Advantages

1. Defined structure

2. Some uncertainty eliminated

3. Cost reasonably known

4. Eliminates future uncertainty of selecting an appraiser

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Single Appraiser Agreement Select Now & Value at Trigger Event

Disadvantages


Single Appraiser – Select Now & Value at Trigger

Event

1. Price not determined now x x

2. Potential for dissatisfaction with the process for all parties x x

3. Danger of advocacy x Minimized

4. Uncertainty over what will happen when a trigger event occurs x x

5. Uncertainty over final price if the process is invoked x x


x x

7. Expensive

8. Time-consuming



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Single Appraiser

Agreement

Select Now,Value Now

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Single Appraiser Agreement Select Now & Value Now

Advantages

1. Selected appraiser viewed as independent

2. Appraiser’s valuation process is seen by all parties at the outset

3. Appraiser’s conclusion is known at outset and has established a baseline price for the agreement

4. Because process is observed at the outset, all parties know what will happen when trigger event occurs

5. Because the appraiser must interpret the “words on the pages” in conducting the initial appraisal, any issues regarding lack of clarity of valuation-defining terms will be resolved

6. Selected appraiser must maintain independence with respect to process and render future valuations consistent with terms of agreement and with prior reports

7. Subsequent appraisals, either annually or at trigger events, should be less time-consuming and expensive than other alternatives

8. Parties should gain confidence in the process

9. Parties will always know the current value for the buy-sell agreement (helpful for planning all-around)

10. Appraisers’ knowledge of the company and its industry will grow over time, enhancing confidence for all parties with the process

11. Creates a means of maintaining pricing for other transactions, thereby enhancing “the market” for a company’s shares

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Single Appraiser Agreement Select Now & Value Now

Disadvantages


Single Appraiser – Select Now & Value at Trigger

Event

Single Appraiser – Select Now, Value Now

1. Price not determined now x x

2. Potential for dissatisfaction with the process for all parties x x Minimized

3. Danger of advocacy x Minimized Minimized

4. Uncertainty over what will happen when a trigger event occurs x x Minimized

5. Uncertainty over final price if the process is invoked x x Minimized


x x Minimized

7. Expensive

8. Time-consuming



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A Hybrid: Single Appraiser Agreement with Multiple

Appraiser Options

• Retain a single appraiser like in the Single Appraiser option

• Call this appraiser the “Third Appraiser” for now

• The “Third Appraiser” provides annual (or periodic) appraisal to update the buy-sell agreement– Just like the single appraiser option where the appraiser is

selected in advance

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Appraiser Options

• In the event of a trigger event:– Step 1. “Third Appraiser” provides an appraisal.

If both sides agree, price is set

– Step 2. If there is disagreement, company retains an appraiser (“First Appraiser”) and shareholder retains another (“Second Appraiser”). At the time of their retention, First and Second Appraisers are provided copies of Third Appraiser’s appraisal and are provided access to him or her

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Appraiser Options

• In the event of a trigger event:– Step 3. Reconciliation can come about in two ways:

• Option 1 – Appraisal Review by “First” and “Second” Appraisers– Formal, Standard 3 Reviews– Informal Reviews, Provide Advice, Recommendations to the “Third

Appraiser”– “Third Appraiser” considers all input, then finalizes report, which

becomes the buy-sell value

• Option 2 – “First” and “Second” Appraisers provide appraisals – Just like in the Multi-Appraiser Process– Have benefit of the “Third Appraiser’s” report in advance– Process can specify how the three are averaged or considered in

final price

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Single Appraiser Agreement with

Multiple Appraiser Options

Appraisal Review

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Single Appraiser Agreement with

Multiple Appraiser Options

Additional Appraisals

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Appraiser Options

• Advantages

– Built-in disagreement resolution process

– PLUS all the advantages of Single Appraiser – Select Now, Value Now


Appraiser Options

DisadvantagesMultiple

Appraiser


Single Appraiser – Select Now & Value

at Trigger Event

Single Appraiser – Select Now,

Value Now Hybrid

1. Price not determined now Maybe

2. Potential for dissatisfaction with the process for all parties

Minimized Minimized further

3. Danger of advocacy Minimized Minimized Minimized further

4. Uncertainty over what will happen when a trigger event occurs


5. Uncertainty over final price if the process is invoked


6. Problems or issues with definition of value, qualifications of appraisers, or any other aspects of the operation of the agreements are deferred until a trigger event – when the interests of the parties are definitely adverse


7. Expensive Potentially

8. Time-consuming Potentially

9. Distracting for management Potentially


Minimized

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The Defining Elements of Process Buy-Sell Agreements

1. Standard of Value 4. Qualifications of Appraisers

2. Level of Value 5. Appraisal Standards

3. The “as of” Date 6. Funding Mechanism

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Defining Element #1 – Standard of Value

• Normally “fair market value”– Willing buyer, willing seller…. but buyers of what?

• “Fair value”– A defined term under state law and a defined term, of sorts,

under accounting rules

• “Investment value”– From the perspective of whom?

• “The Value”

• “Going Concern Value”

• And on and on and on…

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Defining Element #2 – Level of Value

• Which level?

– In other words, the value of what?

• Should be specific

– Refer to specific language and specific

page in book (preferably mine!)

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Price we hope to get if we sell the company together

Price the rest of us can reasonably pay if we have to buy out someone else

“Fair market value of the (minority) interest”

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$100 Per Share$100 Per Share

$60 Per Share

$140 Per Share

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Defining Element #3 – The “As Of” Date

• Defines the situation at the Company,

• within the industry and

• national economy, and

• the pricing from guideline companies

• and comparable transactions

How could this be an issue?

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Defining Element #4 – Qualifications

Qualifications of appraisers

• Education • Valuation training

• Credentials • Nature of firm’s business

• Experience in appraisal • Industry experience

• Size of the firm • Reputation

• Continuing education • Compliance with professional standards

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Defining Element #5 – Appraisal Standards to be Followed

• The Institute of Business Appraisers Business Valuation Standards and Rules of Professional Conduct

• ASA Business Valuation Standards

• Principals of Appraisal Practice and Code of Ethics of the ASA

• Uniform Standards of Professional Appraisal Practice

• Professional Standards of NACVA

• Other professional standards? Specify

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USPAP Changes

• SR 9-2(e)(iii)– An appraiser must….Identify the characteristics of the subject

company that are relevant to the standard (type) and definition of value and intended use of the appraisal, including…

– All buy-sell and option agreements, investment letter stock restrictions, restrictive corporate charter or partnership agreement clauses, and similar features or factors that may have an influence on value.

• SR 9-4(c)– An appraiser must, when necessary for credible assignment

results, analyze the effect on value, if any, of buy-sell and option agreements, investment letter stock restrictions, restrictive corporate charter or partnership agreement clauses, and similar features or factors that may influence value.

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USPAP Changes

• SR 9-2(e)(v)

– An appraiser must….Identify the characteristics of the subject

company that are relevant to the standard (type) and definition of

value and intended use of the appraisal, including…

– The extent to which the interest is marketable and/or liquid.

• SR 9-4(d)

– An appraiser must, when necessary for credible assignment

results, analyze the effect on value, if any, of the extent to which

the interest appraised contains elements of ownership control

and is marketable and/or liquid

– Comment: An appraiser must analyze factors such as holding

period, interim benefits, and the difficulty and cost of marketing

the subject interest.

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Defining Element #6 – Funding Mechanism

• Who buys?– Other shareholders– Company– Other shareholders

and/or company

• Life insurance

• Adequacy of funding

• Nature of mechanism– Cash (is there a

sinking fund?)– Notes

• Down payment• Terms• Interest rate• Security

What does your buy-sell agreement say about the treatment of life insurance

proceeds in the event of the death of a shareholder subject to it?

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3.The Buy-Sell Audit Checklist

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The purpose of the Buy-Sell Audit is to enable a

business owner(s), with the assistance of

accountants, attorneys, business consultants, and

appraisers, as necessary and appropriate, to

express the opinion that his company’s

buy-sell agreement(s) fairly reflect the wishes and

desires of the owners subject to it, in accordance

with good business practices and common sense.

All the shareholders and the company itself rely on

this “audit” in their personal and corporate planning

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Buy-Sell Audit

• The Buy-Sell Audit is forward-looking and addresses questions like:

– Is there a reasonable probability that the agreement will operate to effectuate a reasonable transaction when trigger events occur?

– Are all shareholders who should be subject to the agreement parties to it?

– Do the shareholders who are parties to the agreement understand how the agreement will operate to determine prices and terms for future transactions?

– Has the agreement been reviewed by legal counsel to ensure compliance with applicable laws and statutes?

– Are the six defining elements of value as developed in this book clearly specified?

– Will the pricing mechanism provide a reasonable value if and when trigger events occur in the future?

– Is the funding mechanism in place and workable?

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Structure of the Buy-Sell Audit Checklist

1. Nature, size and ownership of equity

2. Trigger events for consideration



5. Six Defining Elements for Process Agreements

6. Multiple Appraiser & Single Appraiser Agreements

7. Financial Statements / Corporate Information

8. Process Timetables

9. Who Bears the Cost of the Appraisal(s)?

10. Tax-Pass Through Entity Appraisal Issues

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Buy-Sell Audit Checklist Nature, Size & Ownership of Equity

• Parties to consider in discussions about the buy-sell agreement?

• Multiple classes of ownership?

• Groups of shareholders and relative ownership maintenance?

• Age of shareholders?

• Active vs. passive shareholders?

• State law considerations?

• Restrictions under loan agreement?

• ROFRs?

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Buy-Sell Audit Checklist Trigger Events for Consideration

• Q Quits• F is Fired• R Retires• D Disabled• D Death

• D Divorce• B Bankruptcy

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Buy-Sell Audit Checklist Fixed Price & Formula Agreements

• How do you resolve differences?– With a process?

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Buy-Sell Audit Checklist Six Defining Elements for Process

Agreements

1. Standard of Value

2. Level of Value

3. The “as of” date

4. Appraiser Qualifications

5. Appraisal Standards

6. Funding Mechanisms

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Funding MechanismWhat about Life Insurance Treatment

for Valuation Purposes?

Harry Proceeds are a Funding Vehicle Company (Estate) Sam

1 Stock Ownership (Shares) 100.0 50.0 50.02 Stock Ownership (%) 100.0% 50.0% 50.0%3 Pre and Post Life Insurance Value ($m) $10,000.0 $5,000.0 $5,000.04 Life Insurance Proceeds $6,000.05 Repurchase Liability ($5,000.0)6 Post-Life-Insurance Value $11,000.0

7 Repurchase Stock ($5,000.0) $5,000.08 Retire / Give Up Stock (50.0) (50.0)9 Remaining Stock 50.0 0.0 50.0

10 New Stock Ownership (%) 100.0% 0.0% 100.0%11 Post-Life Insurance Value of Co. $11,000.0 $0.0 $11,000.012 Post Life Insurance Proceeds $5,000.013 Net Change in Value from Repurchase $1,000.0

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Funding MechanismWhat about Life Insurance Treatment

for Valuation Purposes?

Harry Proceeds are a Corporate Asset Company (Estate) Sam

1 Stock Ownership (Shares) 100.0 50.0 50.02 Stock Ownership (%) 100.0% 50.0% 50.0%3 Pre-Life Insurance Value ($m) $10,000.0 $5,000.0 $5,000.04 Life Insurance Proceeds ($m) $6,000.0 $3,000.0 $3,000.05 Post-Life Insurance Value ($m) $16,000.0 $8,000.0 $8,000.06 Repurchase Liability ($8,000.0)7 Post-Life-Insurance Value $8,000.0

8 Repurchase Stock ($8,000.0) $8,000.09 Retire / Give Up Stock (50.0) (50.0)

10 Remaining Stock 50.0 0.0 50.011 New Stock Ownership (%) 100.0% 0.0% 100.0%12 Post-Life Insurance Value of Co. $8,000.0 $0.0 $8,000.013 Post Life Insurance Proceeds $8,000.014 Net Change in Value from Repurchase ($2,000.0)

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Buy-Sell Audit Checklist Financial Statements / Corporate

information

• Financial statements to be used

– Most recent fiscal year

– Trailing 12 months at most recent quarter-

end

• Information “known” or “reasonably

knowable” as of the valuation date

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Buy-Sell Audit Checklist Process Timetables

• When is appraisal due from appraiser?– Will a draft be supplied to all interested parties?

• Access of parties to talk to appraiser

• What happens to valuation date in the event of avoidable or unavoidable delays?– No change– Interest beyond ____ days– Reset the date

• Is appraisal conclusion binding?– Dispute resolution process

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Process Activities (in days)

Multiple Appraisers

Single Appraiser – Select Now,

Value Now Hybrid

Trigger Event OccursTime to React

Pick Appraiser(s)Provide Appraisal(s)

Review Appraisals

01

306015

030609030

010

3015

0300

6030

010

3015

0300

6030

Earliest Time to Resolution 106 210 46 120 46 120

Select Other Appraiser(s)Reviews by Appraisers

Prepare Additional Appraisal(s)

Review Appraisals/ReviewsAgree on Conclusions

Finalize Transaction

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3015150

60

60303030

30

3015150

60

60303030

Additional Time for Process 90 210 0 0 90 210

Potential Time to Resolution 196 420 46 120 136 330

Process Timetables

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Buy-Sell Audit Checklist Who Bears the Cost of the Appraisal(s)?

• Cost of appraisal process– Both sides bear own expenses?

– Company pays for process?

– Fairness to minority shareholders?

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1.Getting Agreement – Now



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It is essential for the parties to discuss and reach agreement now as to how the agreement will work because when a

trigger event happens, the interests of the parties will almost certainly diverge

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2.The Six Defining Elements of Process Buy-Sell Agreements


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There are six defining elements that must

be in every process buy-sell agreement if

you want the valuation process and,

therefore, the agreement, to work

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3.The Buy-Sell Audit Checklist

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There is a tool to help you …

The Buy-Sell Audit Checklist

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The One Percent Solution

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Two Types of Wealth

Liquid Wealth

Wealth (asset) management

vs.

Pre-liquid Wealth

Pre-liquid asset management

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American Economic ReviewProfessors Moskowitz and Vissing-Jorgenson (Vol. 4, 2002)

We find investment in private equity to be extremely

concentrated. About 75% of all private equity is owned by

households for whom it constitutes at least half of their total net

worth. Furthermore, households with entrepreneurial equity invest

on average more than 70% of their private holdings in a single

private company in which they have an active management interest.

Despite this dramatic lack of diversification, the average

annual return to all equity in privately held companies is rather

unimpressive. Private equity returns are on average no higher

than the market return on all publicly traded equity. [emphasis added]

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The One Percent Solution

Allocate a percentage of value for the illiquid assets under management to provide the budget necessary

to manage wealth

Liquid Assets

1% of assets under management, +/-, depending on asset category

Pre-Liquid Assets

0.5% to 2% of value (AUM) for businesses depending on value

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The One Percent Solution for Managing Wealth in a Closely Held

BusinessAssumed Pre-Tax

Income ($m)

Assumed Valuation Multiple

Estimated Value of Business

($m)

Management Fee as % of

Value

Budget for Investment

Mgt ($m)

Management Fee as % of

Earnings

$1,250 4.0 $5,000 2.00% $100 8.0%

$2,222 4.5 $10,000 1.50% $150 6.8%

$4,000 5.0 $20,000 1.00% $200 5.0%

$8,333 6.0 $50,000 0.75% $375 4.5%

$14,286 7.0 $100,000 0.50% $500 3.5%

$62,500 8.0 $500,000 0.25% $1,250 2.0%

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Current Role of Wealth Manager

Current Role of the

Business OwnerPhase

Investment Principles

Liquid Wealth

Pre-Liquid Wealth

1 Set Objectives Yes Maybe Sometimes

2 Establish Strategies Yes Maybe Sometimes

3 Regular Monitoring Yes No Seldom

4 Constantly

Enhancing

Yes No Occasionally

5 Review Re:

Reallocating

Yes No Seldom

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One Percent Solution Activities

• Life insurance funding • Wealth manager compensation • Annual valuations and monitoring value growth• Buy-Sell agreement pricing (per annual

valuations)• Annual legal reviews• Estate planning• Financial planning• “Make ready” consulting projects

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What is the Yield/Return …

on an Investment?

(Dividends + Change in Price)

Beginning Price

86

What is the Yield/Return …

In a Business?

(Dividends + Change in Price)

Beginning Price

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Critical Valuation Issues

Growth

Margin

Activity

Financing

Y i e l d

Return on Capital

Valuation :: Essential Element of Monitoring Performance

Value = Earnings x Multiple

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PrivateCo Performance Relative to Market Indices

Wealth Management Scenario #1

0%

50%

100%

150%

200%

2002 2003 2004 2005 2006 2007

Private Company

S&P 500

Dow Jones

NASDAQ

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PrivateCo PerformanceRelative to Market Indices

Wealth Management Scenario #2

0%

50%

100%

150%

200%

250%

300%

2002 2003 2004 2005 2006 2007

Private Company

S&P 500

Dow Jones

NASDAQ

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A Word About Recurring Valuation

• Numerous qualified, independent business valuation firms – Investment banking firms?

– Business brokers?

• Look for experience of the firm and credentials (ASA, ABV, CFA are preferred)

• Ability to value over multiple periods, reconciling value changes with changes in company, industry and markets – with credibility

• Investment in recurring valuations

• Resource: www.appraisers.org (American Society of Appraisers)

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How to Obtain Liquidity and Diversification Without Selling

ALL the Business

• Dividends

• Special dividends

• Dividend recapitalizations

• Stock repurchases

• Leveraged stock repurchases

• Combined special dividends and redemption (with leverage)

• Partial management buy-in (installment sale)

• Management buy-in with outside equity

• Private equity investment

• Private equity recapitalization

• ESOP (Service Companies)

• Private merger with partial redemption

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Too Many Business Owners Put The Majority of Their Eggs in Only One Basket – This Can Be a

Mistake

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Is There Such a Thing as a Free Lunch?

• Many One Percent Solution “costs”

pay for themselves

• Others are added back to

“normalized earnings” in valuation

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Helpful Resources

MERCER CAPITAL website

• www.mercercapital.com

– Library of articles

– Levels of Value charts

– Access to complimentary resources

– Sign up for newsletters, including:• Value AddedTM (e-mail)

• Value MattersTM (e-mail)

• The Transaction AdvisorTM (e-mail)

For a full listing of available resources, please see www.mercercapital.com

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Will you ever think about buy-sell

agreements the same way again?

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Other Resources

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MERCER CAPTIAL5860 Ridgeway Center Parkway, Suite 400 • Memphis, TN 38120

901.685.2120 (P) • 901.685.2199 (F)

www.mercercapital.com

Questions?

Z. Christopher Mercer, ASA, CFA

[email protected]

901.685.2120

Documents

Buy-Sell Agreements -- Time to Review