Owner's family remaining in NewCo?

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?
from The University of Chicago in Chicago, IL, USA
from The University of Chicago in Chicago, IL, United States
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