With all the internal and external competition, sales were growing more slowly than they had in years. Employees were noticing the brothers' friction. "People just saw they can't talk to each other....it was obvious, just them being physically separated all the time," says Carrie Wachendorf, an HR manager. "It's sad to see conflict between brothers," says Terence Leninger. "Brian had a different vision, Darryl was more conservative. Is caution the right way to go? I don't know. Maybe there's a middle ground."
The brothers' idea of family was changing, too. Once it had been them, their sister (who never worked in the business), and Fred. Now Darryl and Brian both had their own wives, children, houses, and plans. Brian thought Darryl's conservatism meant his family wasn't getting the money it deserved. "It came to a point where Darryl was making decisions that affected my family," Brian says. "I've got to protect my [own] family." It was time, Brian decided, to seize power.
In July 2006, backed by a lawyer he'd just hired, Brian called Darryl and the Sam's corporate counsel, representing Darryl, into a meeting. There, he contested the succession document. Brian's lawyer, Howard Davis, had advised him that the document was weak; corporate counsel had an obligation to represent all buyers in a sale agreement, Davis said, and since Brian had agreed to a minority voting share without realizing it, he might have grounds for a lawsuit. Brian asked his brother to give him equal voting power, and to carve out a role whereby he could take on the company's growth. Darryl wouldn't budge on the document and offered only to consider Brian's growth ideas. Davis remembers understanding where both brothers were coming from: "Darryl had a whole speech where he was trying to explain why he did the things he did, and it was emotional....He was focusing on the financial stability of the business, and Brian was focusing on the growth." Finally, Darryl said that if Brian didn't like the arrangement, Brian could buy him out.
Brian's options were limited. The business had debt, and a bank loan was out of the question. He saw private equity as his only choice for a quick deal that might get rid of his brother. It would mean sacrificing Sam's as a family business. He was willing to make that sacrifice.
After the July meeting, without telling his brother that he was taking Darryl's challenge seriously, Brian wrote a 45-page business plan and began asking for referrals to private equity firms. He knew Darryl had voting control and could quash the deal, but he didn't care. "Thinking that far ahead, would Darryl acquiesce if I got his number, was way beyond my capacity at the time. It was, let me first find a guy who'll take my phone calls," Brian says. "I was hoping the combination of the difficulty of the process, the difficulty of the family situation, and the difficulty of wine retailing on the national level would beat him down."
And it did. The succession document gave Darryl the power to turn down any deal Brian brought. But the fight with the Liquor Commission had exhausted him. The situation at Sam's seemed untenable, with the fighting over every tiny decision.
When Darryl learned Brian was arranging deals--Brian didn't tell him immediately, but it was obvious when he began requesting pro forma statements and old financial records--he served his brother with tough terms. But he didn't kill the sale. "I took a good long look at the business, and I thought, 'You know what? I'd rather have the money," Darryl says. He named a price for his exit, insisted there be no audit and limited due diligence, and required a fast turnaround. "I was not doing an audit," he says. "That's an expensive, long-time-frame type of obligation, and we had never had an audit before, and I was never gonna do that. We tried to get it done as quickly as we could for all parties. I don't like limbo; I don't like the effect that it had on our associates."
Brian, who'd been talking to 20 private equity firms, settled on a local outfit called Arbor Private Investment Company. "They were willing to put up with the family dynamic that makes buying a family firm a little more difficult than buying [another] company," he says. Arbor pushed back on Darryl's demand for limited due diligence; it didn't do a formal audit but got the reviewed financial numbers it needed. In January 2007, in the Sam's Wines lunchroom, Brian, Fred, Darryl, and the Arbor representatives shut the door and hammered out the basic terms. Brian held on to 20 percent of the business, and would make no money from the sale. Arbor worked with him to get Darryl the price he'd named within the restrictions he'd set, and gave Fred some cash as well--some of the payment he'd taken in 2003 was in long-term debt, which the Arbor money satisfied. "Fred wasn't money driven. Fred just wanted peace in the family," Brian says.
