In the early stages of selling a company, the owner(s) should select the key management of the enterprise who will assist with sale preparations and assume substantial additional work to support the sale process. It is then vital to put in place a carefully designed incentive bonus program to insure the support of key managers through closing (and potentially beyond with the new company owners). Not only must management objectives be aligned with those of the selling owners (to avoid Agency Risk see previous DEAL NOTE) but the owner(s) want their key managers to support and participate in the sale process in a positive and enthusiastic manner. It is therefore vital that there be financial incentives in place such that key managers are rewarded appropriately upon a successful sale.
The design of such agreements should be done with the aide of trusted legal advisors and may take several forms depending upon the individuals involved and the amount of sale proceeds. It is not uncommon that the value of such retention bonus agreements be substantial amounts. They are sometimes structured such that a portion is paid at closing of the sale and the remainder paid some period of time post closing. This latter structure can provide comfort to the buyer that key managers are motivated to provide continued services post closing.
Have a great day everyone.
Managing Director, Defense