Partner Buyouts: Why They Are Different

Part 1

Partner Buyouts: Why They’re Different

In the world of SBA business valuation, partner buyouts tend to be some of the more nuanced assignments we see. On the surface, the process looks similar to any other valuation. In practice, they usually require a much closer look.

The SBA does not formally define a “partner buyout” as its own transaction type. These deals fall under broader change-of-ownership rules within the SOP and are evaluated based on control, ownership structure, and guarantor requirements.

While the concept is simple—one owner buying out another—the way these deals come together is very different from a typical third-party sale.

How Partner Buyouts Actually Happen

Unlike a marketed transaction, partner buyouts are almost always internal. They’re usually driven by things like:
• Succession Planning
• Retirement
• Long-standing Working Relationships

Most follow a fairly familiar pattern:
• A minority owner buying out the majority owner and stepping into control
• A 50/50 partnership where one partner exits
• A multi-owner group where one partner ends up consolidating ownership

The SBA has, in some cases, allowed financing for partial or non-controlling interest purchases. In practice, though, those tend to be less common, often because of how guarantor requirements line up with control. These structures can also create situations where ownership, control, and financial responsibility don’t line up as cleanly as they would in a third-party sale.

The Key Difference: These Deals Are Not Market-Based

This is where things start to separate from a typical SBA transaction.

In a standard asset sale:
• The business is widely marketed to all potential buyers
• There may be multiple interested buyers
• Pricing gets shaped by competition and expected return

In a partner buyout:
• There is usually one buyer and one seller
• There is often no intermediary involved
• Personal dynamics can carry as much weight as the numbers. In many cases, there’s also an emotional component—especially in family or long-term partner situations—which can further influence how pricing is determined.

Because of that, pricing is often determined without regard to where the market is.

Why Valuations and Purchase Prices Don’t Always Line Up

In our experience, it’s not unusual to see a gap between the agreed purchase price and what an independent valuation would indicate. In many cases, that purchase price has already been agreed to before a valuation is ever ordered, which can create tension if the valuation comes in materially different. Many of these transactions move forward without issue, but the valuation process is often the first time the economics of the deal are looked at objectively.

A few common reasons:

1. No comparison to the market
Many of these deals happen without a broker or advisor. Without that process, there’s nothing testing the price against the market.
2. Limited or no buy-sell agreement
Buy-sell agreements are supposed to address this, but a lot of Main Street businesses either don’t have one or aren’t really using it.
3. Informal starting points
Pricing often comes from somewhere like:
• the seller’s personal expectations
• something they’ve heard from others in the industry
• a number tied to debt payoff or retirement goals
4. Relationship-driven decisions
Sometimes the buyer is a long-time employee or trusted operator, and the seller wants to make the deal workable for them. That can influence pricing more than market data would.

A Practical Reality

Every deal is different, but partner buyouts often aren’t priced the way an open-market transaction would be.
• In some cases, the buyer may be stretching to get the deal done
• In others, the seller may be leaving value on the table

Since the business isn’t exposed to the market, there’s no real mechanism to correct that imbalance.

That doesn’t mean the deal won’t work—but it does mean these transactions typically require more upfront clarity than a typical SBA deal.

Lance LeBlanc, C.V.A., is the President of Green Country Business Valuations, a firm specializing in SBA business valuations for lenders across the country. He has completed thousands of valuations and works closely with processors, underwriters, and lenders to support them through the underwriting process.