Staying power: Buyers Can Benefit When Sellers Take A Postsale Role
Business sellers who aren’t ready for retirement may wish to retain a management role in their companies after they’ve been sold. Such arrangements can offer buyers advantages, including a smoother integration process and higher customer and employee retention. For these reasons, a buyer may even require its seller to remain with the company for a period after the deal closes. However, other buyers worry that a former owner will try to influence their decisions. In these cases, a selling owner may need to show how he or she will help, not hinder, the merged organization.
For many owners, selling marks the end of their involvement in a company — whether they’re retiring from work altogether or starting a new business venture. However, some sell their businesses for financial or health reasons, yet still have a strong emotional attachment to them. This is often the case when a seller is also the company’s founder and has spent years building it up and forming strong relationships with employees, customers and vendors. Sellers may also have a financial incentive to stay on. If a company has been purchased in full or in part with stock, or a deal is structured as an earnout (where the seller is paid in installments based on the company’s future performance), the seller naturally would want to ensure the merged organization’s success.
So why would a buyer want the previous owner of its acquisition hanging around? Most buyers make integrating an acquisition as quickly as possible a major priority. Such integration includes folding acquired employees into their organization and eliminating “us vs. them” attitudes. If the old boss is still on the job, he or she could undermine the new owner’s authority and create dissent by reminding employees of how things used to be done. On the other hand, the presence of a selling owner can make integration easier.
For example, the seller might serve as the primary point person for transitioning typically challenging functions such as IT, HR and accounting.
Selling owners can also be useful when it comes to:
Ongoing projects. If the seller had been developing a new product line or was on the cusp of a research breakthrough when the business was sold, he or she could be essential to the successful completion of these projects.
Running interference. If customers or vendors are unhappy with the change in regime, a former owner can help provide continuity and facilitate discussions with the new owner.
Employee morale. Despite the risks of undue influence, a selling owner can serve as a transition figure, encouraging staff to accept change and stick around. Key employees may be less likely to defect to a competitor if they know their former boss still has a role in the newly merged company.
Protections and incentives
Despite the advantages of keeping an acquisition’s previous owner on in some capacity, buyers may be reluctant, requiring sellers to offer certain incentives and protections. For example, even if they retain an ownership stake and management position, sellers usually have to relinquish veto and “eviction” power. The buyer may also request the right to terminate the seller’s involvement if it isn’t satisfied with his or her job performance or feels the seller is having a negative influence. In such cases, sellers must agree to depart without resistance or recrimination.
Know your place
There are plenty of good reasons for sellers to play a role in the future life of their former businesses. Yet sellers need to remember that, after a deal closes, they no longer call the shots and that the buyer’s needs take precedence.
Grimes, McGovern & Associates provides expert advice during all phases of a transaction. Contact us today for a confidential consultation: John McGovern, CEO, [email protected], (212) 255-9700.
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