I had coffee with a friend recently. He does commercial real estate appraisals, usually on large factories and office buildings all across New England. He told me this story about an appraisal he had just completed, he knew it would interest me.
It was a typical river town, like so many scattered throughout New England. Once a center of manufacturing and prosperity, now sports a tired downtown and magnificent, but abandoned brick mills crowding the banks of a river. Even the river has seen better days.
Once booming, it was all downhill from the 1920s – the advent of air-conditioning and rise of cheap labor in the South quickly stripped away businesses that had been thriving since the Civil War. The final nails in the manufacturing coffin was the Great New England Hurricane of 1938 and devastating floods in the mid-1950s.
By the 1970s this particular town was almost boarded up. The town is miles from a city, there were no jobs in town, it was too far to commute. Enter two brothers. They could be twins – they’re both tall, thin, avuncular, with many laugh lines – though they are three years apart in age.
In the mid-1970s they bought – at bargain rates – a long stretch of property on the river. They knocked down the ruins that were there and built a modern, 110,000 square foot wire manufacturing plant. People not only thought they were crazy, they had no problem telling the brothers that to their faces.
But, the business took off, in short order became the largest employer in the area since the Depression Era. A bit of an awakening of Main Street followed, particularly restaurants and bars.
In the mid-80s the brothers expanded. This time with the blessing and full support of the town. The town gave them property on the opposite bank of the river where the brothers built an almost identical plant. The town voluntarily floated tax abatements, widened the roads for them, did everything they could to insure the brothers were comfortable and unimpeded by bureaucracy.
The company flourished and our small New England town stayed alive. There were improvements and additions and more employees and more concessions voluntarily granted by the town. Some of the boarded-up Victorians lining the hill above town were renovated, the old movie theater reopened.
By 2010 or so, it looked like another expansion was in order, the brothers hired consultants to look for properties, held talks with the town, settled on a plant design, began training employees.
Then, one bright sunny day not too long ago, the younger brother was late for work, a rare occurrence. When he finally showed up hours into the day, he went straight to his brother’s office and told him he was done. Over. Wanted out. Now.
He had had it. He demanded to be bought out for the exact amount, down to the penny, of what half the business, property, contracts, company trucks and cars, goodwill were worth. His attorney would be in contact later in the day.
And that was it. No warning, no explanation, just a demand for his money. Indeed, no explanations were ever offered.
It goes without saying the first casualty was the expansion plans, by then in the late stages of development. It soon became apparent that the only way to pay the brother half the value of the company might involve some things he’d never considered, quickly trying to find a partner he’d be able to work with to purchase his brother’s interests, major lay-offs, selling off some assets, or maybe something he’d never contemplated and couldn’t quite wrap his head around, selling the entire business and getting out altogether. After all his years of hard work building a successful business. Not if he could help it. Not the desired result. And now, he’d have to hire counsel and devote a lot of time, attention and money to this latest, unexpected development, trying to find a solution in the middle of this.
There are, as one can imagine, a million issues that arose with every step they took.
All too often, new businesses (and more seasoned businesses alike) tend to put off important topics like succession planning for another day, especially as business is humming along, but in life, as in business, unexpected things happen.
The best time to plan for the future, and have smooth transactions for preserving wealth, is at the start of the venture, not in the middle of a crisis. And the companies with good exit plans and buy-out strategies in place for before they need one is what often distinguishes the successful long-term ventures from the others.
The problem here is simple and widespread – the partners had never discussed anything beyond the day-to-day of running the business. Now, the entire financial future of both brothers is uncertain and an entire town quakes while it awaits what one of the brothers set in motion.