Management Transition Agreement

May 03, 2024

by a searcher from University of Virginia-Darden - Darden School of Business in Washington, DC, USA

I recognize that management transition terms can vary based on the buyer's experience and other industry-related factors, but I'm seeking some general guidelines for reasonable transition terms to negotiate.

How many hours per week and for how long on-site is typically expected from the previous owner? Should after-hour support or phone calls after the agreement ends be mentioned? Are there any must-have provisions I should ensure are included?

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Reply by a professional
from University of Toronto in Toronto, ON, Canada

Thanks, ^redacted‌ - As both ^redacted‌ and ^redacted‌ have noted above, transition arrangements are very flexible and highly customizable on a deal-by-deal basis. In some cases, they reflect what the buyer needs in terms of on-going support while they learn the operational aspects and assume active management of the business, and also to leverage the seller's personal relationships with key customers to minimize customer loss. In other cases, they may reflect what the seller wants since a salaried transition essentially provides extra value in the purchase price. However, there is also a countervailing perspective; namely, that the best seller is one who is no longer part of the business, since the ongoing presence and participation of the seller in the business may cause both internal management issues (divided loyalties, etc. from staff) and unproductive friction between the seller and buyer over management strategy and execution going forward.

Reply by a professional
from University of Michigan in Detroit, MI, USA

Hi ^redacted‌, you've already got some great answers here, and I haven't got a lot to add. The only thing I'd mention in addition is that we see a lot of deals where the buyer gets 1-2 months of near full time transition services included in the purchase price. These deals are normally in the $1-$5MM range and include some amount of seller financing. As for the seller's precise role during that time, it is really deal specific. That said, I always advise my clients to ensure that the seller is coming in as if it is business as usual to run the organization for some amount of time post-closing. Hope that helps.

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