One of the keys to a buy-sell agreement is the valuation of a company. But what happens when the principals can’t agree on how to get there? Jim Aussem, co-chair of Weston Hurd’s estate, trust and probate practice group, sometimes uses a push-pull agreement.
Here’s how it works. One business owner feels he can no longer work with the other. If the two have a push-pull agreement, that owner goes to his partner and offers to buy him out. The first owner’s offer becomes the terms and conditions under which the sale will take place. Aussem calls it the trigger.
But here’s the catch. The second owner can either agree to the terms and sell his share of the business, or invoke the push-pull agreement and actually buy the first owner’s half of the business using those same terms.
“Whoever pulls the trigger first sets up the terms and conditions,” Aussem says. “The other party either has the right to accept them or pay them. I’ve used that a couple of times, and it does force people to be reasonable.”
With no valuation mechanism in place, problems arise. Sellers argue the business is worth a lot of money, while buyers insist the business has problems.
“When you use a push-pull mechanism, by definition it works as a deterrent because you are going to be very careful, because you don’t know if you’re going to see a million dollars or have to pay a million dollars,” Aussem says.