In business, breaking up is not only hard, it’s expensive.
Adam Pratt, the president of Town of Tonawanda fastener manufacturer Sherex Fastening Solutions, is learning that the hard way.
His relationship with James Pickren, Sherex’s minority owner, turned sour just a year after Pickren was named as the company’s CEO, roiling relationships with staff and eventually leading to Pickren being stripped of any role in the firm’s day-to-day operations.
Pratt now is in the process of buying out Pickren’s stake in the business in a $7.5 million deal that will saddle Sherex with a heavy debt load and force Pratt to use his house and an unlimited personal guarantee to help secure the needed loans.
Pratt hopes that the buyout will yield a happy ending for Sherex. He believes Sherex’s business culture has improved since Pickren left, and sales are growing. Ridding the company of Pickren’s $600,000 annual salary will allow Sherex to add four or five people to Sherex’s sales staff. It also will remove a threat to the company’s operations in the Town of Tonawanda’s Riverwalk Solar Energy Business Park, which Pickren wanted to mostly shut down and move closer to his home in Richmond, Va.
Pickren disputes that account, culled from documents Sherex filed with an Erie County Industrial Development Agency affiliate that is providing a $750,000 low-interest rate loan to help fund the buyout.
“There’s nothing acrimonious here,” Pickren said. “I’m an investor. It’s just a good time for me to exit.” Pickren said the details included in the IDA documents are “not an accurate assessment” of the breakup.
Either way, Pratt’s experience also is a cautionary tale over the high price that a business and its owner can face when a key relationship breaks up.
That’s not what Pratt was expecting when Pickren joined Sherex, a manufacturer of clinch nuts, rivet nuts and other fasteners, according to the IDA documents and agency officials familiar with Sherex.
As the company grew, Pratt wanted Pickren, who already owned a 30 percent stake in the business, to take on a more active role in the company. After all, Pickren had 24 years of experience at industrial businesses and he’d held top management positions at several firms. Pratt thought that experience would be invaluable as Sherex grew.
Almost immediately, Pratt saw signs of trouble.
He came to see Pickren as a micro-manager. On several occasions, Pickren gave employees different instructions and threatened to fire them if they didn’t do as they were told, Pratt alleged.
In February 2015, less than a year after Pickren became CEO, he met with Pratt, who told him that his behavior was hurting production and straining relations with the company’s staff. A month and a half later, Pratt saw little to no improvement. By then, several employees had filed complaints and grievances.
“One key employee felt the environment was so toxic, he resigned and considered legal action,” Pratt told IDA officials.
Pickren “had become a negative impact,” said Gerald Manhard, the chief lending officer for the IDA and its Regional Development Corp. affiliate, which last month approved a $750,000 low-interest loan to help fund the buyout.
Pickren also was pushing for an even bigger shake-up at Sherex. He wanted to move most of the company’s operations closer to his home in Richmond, Va., where he believed the business climate was better.
“He’s really not pro-New York at all,” Manhard said.
By the fall of 2015, Pratt met with Pickren again and told him that he no longer could be involved in Sherex’s daily operations. Since then, sales and morale have improved, the IDA documents said.
Eliminating Pickren’s $600,000 annual salary also will free up money to pay down some of the debt and also add four or five new jobs over the next three years.
All the while, Sherex still was growing. In 2014, it opened a factory in Akron, Ohio.A year ago, it bought a California company, Disk Lock, that makes specialized vibration-proof fasteners, and shifted its operations to the Town of Tonawanda. Sherex’s work force doubled over five years to 43 today.
Ending his ties to Pickren wouldn’t come cheap for Pratt. To buy out his 30 percent stake in Sherex and the 45 percent stake he owned in Disc Lock, Pratt had to come up with $7.5 million.
More than half of that money is in the form of a $4 million note that Pickren will receive. The remaining $3.5 million comes from loans, forcing Pratt to put up his Buffalo house and all of Sherex’s business assets as collateral. He also had to provide an unlimited personal guarantee that the loans would be repaid.
But that’s the price you have to pay to save local jobs when a business relationship sours.