Owner's family remaining in NewCo?

searcher profile

January 30, 2025

by a searcher from Harvard University - Harvard Business School in Westchester County, NY, USA

Has anybody acquired a business where some of OldCo owners’ family remains in NewCo? Normally family staying in the business is a yellow flag for me but wondering if I’m being too picky. How can I mitigate the risk of the remaining family just walking away post closing? Or perhaps worse, staying on and still taking orders from the old owners?
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commentor profile
Reply by an investor
from The University of Chicago in Chicago, IL, USA
As most have indicated, it depends on an individual's role and contribution to the business. For some, you will want legal protections (covenants, indemnification, etc.). For others, you will want want them to leave (now or eventually). Putting that to the side, keep common sense considerations in mind. First, no seller or seller group (including partners or family) ends up completely happy post-closing. You will be the "new" guy who will be changing "their" world no matter how good your intentions are. Those receiving no or limited economic windfall who remain will be the least happy. Second, the timeframe at closing or immediately post-closing will be the easiest time for you to make the difficult decisions. I would suggest you that you take a candid, critical look at your circumstances and make all difficult decisions through the closing process or at the quick onset of the new enterprise. Be above-board. If you plan to eliminate family members now or later, you should discuss same with the seller(s) prior to closing. Any bargain between two knowledgeable participants is the best bargain.
commentor profile
Reply by a searcher
from The University of Chicago in Chicago, IL, United States
Almost all the practices we bought have spouse involvement. You can manage this for the most part as long as the spouse is not critical and are helping out with some back office / admin duties like bookkeeping, AR / AP, etc. But if the spouse is front and center and key to run the business, I would be less interested in acquiring.
In one case, spouse, sister (CFO), mom (GM) and dad (sales) were all involved in the practice and everyone was very integral to the business and in cases like these it will be hard for you as a business owner to incentivize them to continue or follow your direction post sale. Even if we had tight contracts, earned equity or other financial structures in place, operationally we knew it would be a nightmare to run post sale. We did not pursue this practice and walked away even though it was doing $6M+ in Rev and $1.5M+ in profit
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