Retail Business Breakup

Business Valuation for a Partnership Breakup

THE CLIENT:
Three partners bought a retail business in 2005 with only an informal agreement between them.  When the operating partner proposed to buy out the others in 2012, there was no pre-set arrangement as to how to value the business.  Instead, the operating partner commissioned a “calculation of value” and made an offer based on that determination.

THE CHALLENGE – DETERMINING ACCURATE BUSINESS VALUE:
Despite the fact that sales had increased significantly and margins appeared solid, the offer was for considerably less than the 2005 purchase price.  Morrison was engaged by the selling partners’ attorney to assess the proposed business valuation.

We found that the calculation of value, though prepared by qualified business appraisers, was based on methods selected together with their client rather than on the appraisers’ independent judgment (which was properly disclosed).  Accordingly, we were able to point out several key factors that had been disregarded or not fully considered, assumptions that were questionable given the facts, and other issues. The result was a business valuation that was about double what had been proposed by the buyer. 

THE RESULTS:
Based on our business valuation assessment, our clients turned the tables and made an offer to buy out the operating partner rather than sell to him.  An agreement was reached and our clients were able to purchase the remaining interest in the business at a price advantageous to them.