I'm currently evaluating the acquisition of a home services business. I need to hire an operating partner and am seeking advice on how to structure their compensation as I model and negotiate this deal.

Does anyone have any thoughts or advice after reading the below? I’m particularly interested in advice the compensation component.

Deal profile:

  • EBITDA >$1M
  • 30+ year established home services business
  • Solid middle management layer to handle day-to-day
  • Current owner will entirely exit, not be around to help except minor consultation via phone calls

Operator profile & responsibilities (already have at 2 legit candidates, established relationship & high degree of trust):

  • Younger individual with relevant experience but not a lot of capital
  • Needs to be in the business day-to-day for###-###-#### months. Goals are the a) ensure successful transition, b) solidify & train a management layer, c) build processes and financial controls we can use to manage the business on an going basis
  • After that initial stint, I want that individual to be part of the ownership team, be ultimately responsible for successful operations, but not “in the business” day-to-day.
  • Capital contribution: I expect the operator will contribute either a very small investment ($10-20K) or nothing.

Compensation

  • Base salary - what’s a good benchmark? $125 - $150K seems to be what it takes to hire a serious GM in Virginia.
  • Equity - does anyone have good examples of how this has been done? Obvious market comp is a search fund model where they get approx. 8% at deal close, 8% vesting over 3-5 years, 8% based on performance goals. Since they aren’t closing the deal I’m thinking something like 15-25% equity, half based on vesting schedule & half based on performance