With his buyback, he wanted to try something different: put guaifenesin in long-acting form, apply for F.D.A. approval and corner the market since his old rivals would have to apply as well to compete. “This was a huge bet that we could get regulatory approval,” said Mr. Adams, 75.
It also was a shift for someone who had spent the previous years building a luxury ranch and conference center outside Dallas and generally living a nice life. But he said he missed the competition. “It was the challenge of being the first one to get a patent on guaifenesin,” he said.
It helped that he had paid only $3.5 million for the business, but another advantage was how he acquired it. He structured the transaction so that he bought only the assets of his former company. Doing a deal this way meant he was buying something with tax advantages — he could reduce the value of the assets over time, called depreciation — but he was also getting his company back without any potential but hidden legal problems that could come from buying it as a stock transaction.
“If you buy the stock, you’re buying everything, including, say, a sexual harassment claim, or a product liability,” said Jere Doyle, wealth strategist at Bank of New York Mellon. “If you buy the assets of a company, you’re just buying what you want and not all those liabilities.”
Initially, Mr. Adams thought he would need only $8 million and 18 months to get regulatory approval for the long-acting drug. But it ended up taking six years and $82 million.
In 2002, the company got F.D.A. approval for the long-acting drug, now known as Mucinex, and the next year it went public. The initial public offering raised $135 million for the company, and on the first day the shares rose in value by 50 percent.
“What drove me more than any one thing was the fear of failure,” Mr. Adams said. “I knew that if I managed the company well, the financial rewards would be automatic.”
One thing that surely helped him was essentially buying back the same management team from the old Adams Laboratories. When the new owners, Medeva, decided to move its operations to Rochester, many employees did not want to leave its base at the time, in sunny, warm Fort Worth. The stroke of luck gave Mr. Adams a team that had been successful before and knew how to work together — so successfully that the new company was itself subsequently acquired.
Next to having sufficient financing, Mr. Dyett said, keeping a management team in place increases the chances for a buyback to be successful. When Ms. von Seldeneck bought back her recruiting firm, she benefited from having lost only one critical employee in the acquisition, her chief financial officer. But he returned once Diversified was independent again.
Still, there are downsides even to successful bids to buy back a family business. All the same estate planning and succession issues come right back.
Yet from an estate tax perspective, putting some portion of the firm into a trust for heirs makes sense. Having a definite purchase price establishes a set value for those shares that the Internal Revenue Service will not be able to challenge down the road. The question, though, is how much.