Case Studies
Sale of Multi-Entity Residential Electrical Services Business to Private Equity Buyer with Minority Interest Retained
Our client, the sole owner of three related residential electrical services entities operating under a common platform in a Southeast U.S. coastal market, sought to partner with a private equity buyer while retaining a meaningful ongoing equity stake in the business. The transaction required selling 85% of the membership interests across the consolidated enterprise for $8,840,000 at closing, with the seller retaining a 15% interest to be purchased out by the buyer between the first and second anniversary of closing for $1,560,000 — yielding a total implied enterprise value of approximately $10.4 million. The structure was anything but straightforward: three operating entities had to be consolidated into a single transaction, the seller owned proprietary operational software in his individual capacity that could not be conveyed with the business, and the parties needed to negotiate a detailed governance framework governing the seller’s minority interest during the interim period — including distribution priorities, board rights, and put and call option mechanics.
We began by addressing the multi-entity structure, working to ensure that the consolidation of three separate operating entities into a single transaction was accomplished without creating gaps in representations, warranty exposure, or title chain issues across any of the three companies. Each entity required its own diligence workstream, and we coordinated those parallel tracks to meet the buyer’s timeline without sacrificing thoroughness on the seller’s side.
The treatment of the seller’s proprietary operational software required careful structuring. The software was owned by our client individually and was expressly excluded from the assets being sold. We negotiated a royalty-free, irrevocable, non-transferable license back to the company at closing — ensuring the business retained uninterrupted access to a mission-critical operational tool while preserving our client’s personal ownership of that intellectual property. We also secured the pre-closing distribution of certain excluded personal assets, details that might have been overlooked in a less attentive review of the transaction terms.
The retained 15% membership interest demanded significant attention. We negotiated a governance structure in the amended operating agreement that gave our client priority Class A distribution rights over the buyer’s Class B interest, pro rata quarterly profit distributions, annual tax distributions, preemptive purchase rights, and the right to approve fundamental major actions of the company. Critically, we secured a put option allowing our client to force the sale of his remaining interest at $1,560,000 if the buyer breached its fiduciary obligations — providing a meaningful exit right and accountability mechanism during the period our client remained a minority owner.
One of the most distinctive features of this transaction was a tax rate true-up provision we negotiated on our client’s behalf. Because federal and state tax rates were in flux at the time of closing, we secured a buyer obligation to make a substantial additional payment if increased tax rates resulted in a higher post-tax burden than our client would have faced had the transaction closed in the prior calendar year — a seller-protective mechanism rarely seen in transactions of this size.
The employment agreement negotiation was equally detailed. We secured an 18-to-30-month term with a guaranteed minimum annual salary, a 60-day on-site transition period followed by the right to work remotely, E&O and D&O insurance coverage for our client as an additional named insured, and a provision protecting our client’s health insurance for a full 24 months regardless of his employment status. We also negotiated a premium on the buyout of the remaining 15% interest if the buyer terminated our client without cause before the 18-month guaranteed period expired — converting what would have been a neutral separation into a meaningful financial penalty for the buyer.
The transaction closed with our client receiving $8,840,000 in cash at closing, a fully negotiated and protective operating agreement governing his retained 15% interest, and employment agreement terms that preserved his income, benefits, and flexibility through the transition period. The operational software he had built remained his personal property, licensed to the company on terms he controlled. His put option provided a clear path and defined price for his full exit, with fiduciary breach protections that gave him real recourse if the buyer failed to operate the business responsibly. The tax true-up provision ensured that any increase in federal or state tax rates would not erode the economics of a deal our client had spent years building toward.
This case study is provided for illustrative purposes and describes the nature of services rendered. Certain details have been generalized to preserve client confidentiality.