Experience structuring deal around owner as key man

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by a searcher from University of Nebraska-Lincoln - College of Business Administration
in Washington, DC, USA

1yr ago

Experience structuring deal around owner as key man

Hi All,

Would love to hear your perspective on structuring a deal around owner as key man risk. Owner is performing large share of work. Would need to hire 2 or 3 folks to replace workload. Deal would still cash flow.

thanks,

troy

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reply by a searcher 1yr ago
from University of Nebraska in Washington, DC, USA

Sure thanks Chris. Owner is responsible for 60% of revenue with limited team involvement. I know owner has declined as much as 75% up front. The deal price reflects such owner involvement. So there’s room to hire a team to take over day to day responsibilities but, would require a 12 month transition. I am nervous with greater than 75% of purchase price up front will leave me vulnerable on transition.

reply by a searcher 1yr ago
from University of Pennsylvania in Newport Beach, CA, USA

That’s tough re: structuring.
The way I’d approach it is try to sell a short 1yr forgivable seller note, but sounds like that doesn’t work.
Theoretically, you could have a large and 1 yr long escrow. That’d be atypical though.

Best approach I’ve heard of others doing is to get involved today (I.e., the searcher gets deeply involved in operations before close to get comfortable that transition won’t be an issue). This requires seller to be comfortable of course.