In these uncertain times ascertaining precise valuations can be challenging so very often we see exit transactions involving some form of deferred consideration or earn-out mechanism to ensure business performance matches sale price. Here, Piers Dryden discusses how an outgoing management team can remain involved in the business and looks at the advice of previous clients on how best to deal with it.

There will be much negotiation around the earn-out mechanics, including ensuring that resource in the acquired business continues to be directed in a consistent manner and is not diluted to the detriment of achieving the earn-out. Likewise, around the ongoing accounting and ordinary course business terms as well as strict adherence to the business plan agreed in the pre-sale negotiations. But what is equally important is to ensure the continued engagement of senior management and the outgoing founders throughout the earn-out period. Senior management can be incentivised via option schemes but for the founders it can be very difficult to remain engaged even where there is the lure of the earn-out at the end of their engagement with the business if the performance targets are met

Our clients who have been in precisely this situation have given us various insights on working in a business that you used to own and control following a sale transaction.

Client A – appreciate the buyer’s business culture

Having a good appreciation of the buyer’s business culture and way of doing things before the deal completes is helpful in transitioning to this role. Ultimately it is their approach and not yours that will define the business’ path once you fully leave so it is better to focus on what you can control, be it customer relationships, your relationships with the team and the buyer’s team and leave process management and cultural change to the buyer so far as possible. This will give you time and emotional space to focus on other areas of your life that are important whilst enabling you to retain focus on your professional objectives as well.

Client B – new relationships need to be built

Be aware that your relationships within the business will have changed. You are no longer the key arbiter of your colleagues’ career progress and success within the business, and they will not regard you in the same way as before. Ultimately, they have new reporting lines to manage and impress. It is important to be alert to this change in advance and recognise that personal relationships will remain, but new ones will need to be built by those who are remaining in your business, with the buyer and its team.

Client C – understand what motivates you

Ensure you are clear on what motivates you in the morning to get up and go to work. Yes, the earn-out itself is part of that but it will be a relatively small sum in relation to what you have already banked. Accordingly reframe the challenge in front of you. For example, to accepting the change in role, achieving the earn-out but also to preparing for life following your involvement with the business. Your time there is finite in a more immediate and definable way than ever before but so too is life afterwards. Embrace that and the opportunities that will come with it.

Final thoughts

Continuing to work in your business when it is under new ownership can be a challenge, but it also gives you that chance to see the early stages of its next chapter of life and take time to appreciate what you have built. Take that opportunity so when the time comes finally to fully leave, you can do so with a sense of closure and peace and a soft landing towards what comes next.