Uncomfortable Family Reunion

A business owner, we'll call him John, grew his rebuilt truck parts business over 30 years to 20+MM – no small achievement. John's  company was a major employer in a small town. John himself was a celebrated benefactor at school fundraisers and church events. He was on a first name basis with nearly all of the town as they were either family, friends, employees, or all three. But time had taken its toll and John began to struggle with the daily regimen of running his company. His body would no longer do all that he demanded of it. So John started to look for his way out.

 

His way out went by the name of Greg. Greg's company was discovered after a long and detailed buyer search. And it was a perfect fit.

 

As the LOI was being lawyered into the definitive agreement, Greg hopped a plane, rented a car, and drove the 4.5 hours out into the hinterlands to review the operation one more time. On this visit, Greg found several inventory inconsistencies. Moreover, several employees were uncomfortable answering simple operational questions when he tried to clarify the situation. After he returned to his office, he interviewed and engaged the services of a professional, non-financial auditor. 

 

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It turned out that Ralph, the general manager of one of the satellite offices, had been pilfering a small percentage of inventory for many years. He would sell his special "off the books" product to customers and pocket the money. This had grown to over $1MM in stolen inventory. Worse yet was that in order to pull off this scheme successfully over many years, Ralph had recruited several company employees to help him execute his "business within a business". 

 

Greg presented his findings to John.  Greg may have only been involved in a couple of acquisitions, but he understood that this problem would be a potential nightmare for him. Who was honest? Who belonged in jail? Which customers should be fired? Which would leave due to the turbulence? How deep would the impact on company morale be when this was made public?

 

Greg exited the purchase agreement with the sorrowful but understanding assent of John.

 

John abandoned his search for a buyer knowing that no one would buy a company with this much hair on it. He had bigger problems. His biggest worry wasn't the loss of a significant amount of money through theft. It wasn't the loss of a staggering amount through the transaction's failure. It wasn't the turmoil that would come with cleaning house. It wasn't the upheaval this would cause the community.

 
John's biggest worry was his wife's tears over her sister's rat of a husband, Ralph. Not to mention the family reunion they were hosting next month.