Think of a shotgun clause as a high-stakes game of “buy or sell.” Partners use it to quickly resolve disputes and set prices. Here’s how it works:
- One partner makes an offer to buy another partner’s shares at a set price.
- The targeted partner must either sell at that price or buy the offering partner’s shares at the same rate.
- Timeframe? Usually a month or less.
Seems fair and simple, right? But there’s a catch. The one making the initial offer is taking a gamble. The offer could be accepted or flipped back on them, forcing them to sell. It’s a fine line, setting a price that’s neither a steal nor a rip-off.
Mostly, the shotgun clause surfaces when the business hits a snag or partners can’t agree on how to run things. It’s a fast, albeit blunt, way to force a decision.
However, a shotgun breakup is not always as fair as it might seem. The partner who can pay up the quickest—often the one with deeper pockets—usually wins, not necessarily the one who values the business more. This week we dropped an interview with Mark Ferrier, the founder of TRAFFIKGROUP, which was acquired by Onex in an eight-figure exit.
Mark started TRAFFIKGROUP after being on the losing end of a shotgun agreement at his former company, LAUNCH!
Mark was a minority shareholder of LAUNCH! and with no money to speak of outside of the business, when he reached an impasse with his former partners, they triggered the shotgun clause in their agreement, offering Mark $214,000 for his shares in their business. With little money or time to raise the funds to buy them out at the same price, Mark agreed to leave and took the $214,000 and started TRAFFIKGROUP.
📽️ Clip of the Week
In this clip, Mark breaks down how shotgun agreements work.
📣 Quote of the Week
“This one clause actually drives a lot of clarity around what you want in these tense situations.”
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– Mark describes the benefit of a shotgun clause.
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📈 Deals
- The owners of two physical therapy practices have entered into separate transactions with U.S. Physical Therapy, Inc.(NYSE: USPH), a national operator of outpatient physical therapy clinics and provider of industrial injury prevention services. With these acquisitions, USPH expands its presence in Alaska and establishes its first clinics in Colorado. While the sellers retained a 30% equity interest in their respective practices, USPH acquired a 70% stake for $13.9 million. Collectively, these clinics generate an estimated $7.2 million in annual revenue meaning USPH valued the combined group at almost three times revenue.
- Burris Equipment Company, an Illinois-based supplier of construction and turf equipment is set to be acquired by Alta Equipment Group Inc. (NYSE: ALTG). Priced at $14.0 million in cash, the acquisition will provide Alta with an opportunity to diversify its product offerings and broaden its footprint in the Chicago region. Burris recently reported $40.6 million in revenue, $1.9 million in net income, and EBITDA of $4.6 million for the twelve months leading to July 2023, meaning Alta paid around 3 times EBITDA for Burris.
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If you know someone who has successfully exited their business and has valuable insights to share, we encourage you to nominate them.
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