Many of our prospective sellers have a good deal of curiosity, and sometimes a real concern about what sort of role they may design for themselves with the new owner/buyer post-sale. The range can be pretty dramatic, and often times the owner really doesn’t need to firmly decide on his role, until later, after he gets a feel for what life will be like after a control shift.
We’ll describe for you several potential outcomes you may face and talk about how the sale agreement may be designed, upfront, to allow maximum flexibility post-sale.
We have any number of owners who actually love a portion of their work responsibilities, but really DON’T like some elements of what naturally comes with business ownership. With a little care and planning ahead of sale, it may well be possible to clearly identify what role a founding owner may wish to keep post-sale, and what he may hope and plan to transition to other hands post-sale.
We sold a plastics manufacturer about 5 years ago, who was doing very well, but who was simply tired of hassling with the financial oversight required, and who had a partner in the business who really kind of wanted the luxury of “cashing in” in their hard work to date. The incoming owners represented an equity fund, which had quite a few other holdings in the same plastic injection molding space, and who knew the environment well. The purchase price they paid for the company was not the maximum bid on the table at the time – but it was reasonably close.
The owners both took on a full one-year employment contract, with an upfront acknowledgment that they might or might not want to continue beyond that time. All employees for the company were retained post-sale. Financial leadership within the selling company was relatively weak, so although all jobs were left in place, a new (stronger) Chief Financial officer was hired and was inserted half a notch above the old controller.
At the end of the first year under the new ownership, one of the owners took advantage of his option to exit. The other owner remained, with a slightly different ongoing role, with very heavy emphasis on new product development (which was always his first love).
I spoke to that owner recently, after now 5 years within the new structure, and he remains happy and content, makes great bonus potential with new products he has been involved in developing, and says it’s pretty much a “happily ever after” outcome.
We had another company that had a number of threats to business, which made the owner eager to move on, but which also made it hard to achieve all cash pricing at maximum price for a clean sale. The owner ended up accepting a proposal for payment of ¾ of the aggregate price upfront, plus a bonus to be paid after the first year of operation. Pricing for the upfront portion ended up being $13M, with a fairly strong percentage bonus to be paid after the first full year after acquisition. Business held nicely for that time, and the owner ended with an additional bonus in sales price of another $7M for the first year. During that time the owner had moved on to fully retire. The company didn’t fare well without him, and in less than three years after his exit, results dropped dramatically, and the successor owners ended up re-selling at a much-reduced price. Our CEO/owner had chosen the perfect time to drop back.
Another seller we worked with, who owned 100% of his company at the date of sale, was very eager to exit asap. He had a second in command COO who actually had a 10% stake in profits as a piece of a bonus compensation structure. The deal closed as planned, the second in command got over a million in bonus at the time of sale, and the exiting owner went on to do other things.
The 10% bonus piece due to the second in command was actually shifted to a 10% ownership stake, which was bonused to him by the buyers, in exchange for his commitment to stay on. Over succeeding years, that 10% stake increased, with additional bonuses consistently, bringing him in about 8 years to a 50% share of ownership in the company. The company was then sold to a successor buyer, and Mr. Second-in-Command departed with the follow-up sale, with a nest egg of about $25M (a very happy ending for a much-deserved reward for long term team playing!)
There is almost always a great deal of opportunity for revisions in the role for owners, post-sale. Owners usually are very GOOD at the parts of their business that they most love, and buyers naturally tend to want to nourish that affection!
The more you know about what you love about your operation, the easier it will be to find a buyer who respects and wants to nourish that affection. Sale doesn’t mean you need to opt-out, and it doesn’t mean you cease to be rewarded for what you do best, and what you love. The more you learn about the real natural “fit” of your talents to the operation, the easier it is to find and sell to a buyer who can fit with you for the future.