In a panel discussion, Speaker A emphasizes that investors and acquirers focus heavily on the strength and continuity of the management team, especially the risk posed if a founder like Tom departs. He recommends mitigating this perceived risk by building a robust leadership team—through CEO/president succession planning, adding a dedicated CFO, or appointing a COO—so that the business can thrive post‑transaction and the founder can step back. Speaker B expands on this by arguing that owners should proactively involve senior managers in enterprise‑value creation, even if they are not currently planning a sale. He shares data showing that owners typically grant 0‑33% (average 5%) of transaction value as a bonus to management after a deal, and suggests that this incentive can be aligned earlier by discussing expected enterprise value and setting a compensation pool, thereby aligning management’s interests with the owner’s and avoiding resentment. The conversation underscores the importance of early, transparent incentive structures and succession planning to enhance company value and satisfy investor concerns.
Chapters
With your comment and Melinda's comments, both of them in many ways, in our experience, tied to something investors or acquirers are looking for, which is who is the team, who is the management team in place? And one of the real risks or perceived risks that investors often bring up is what, what happens if Tom goes away? What value, unique value does he bring to the table that maybe sits solely with him and a A great way to mitigate that is to bring on board a great team, a management team, to invest in the management team. And whether that's direct leadership, so the president or CEO succession planning, or offloading/investing in your financial function in a proper CFO role or a COO role, operations professional. But whatever the particular business needs, a great way to mitigate the perceived risk from an investor standpoint is to show them that you have these leaders who intend to stay on board following a transaction. And Tom, therefore, it also gives him an ability to feel as though he doesn't have to be there every single day or as involved into the future.
In fact, I would say I give you something controversial to think about. Bigelow's point of view on this is you don't have to be interested in selling your business to want to optimize enterprise value, right? Because from increased enterprise value, all good things come. So if you believe that, and if you think you might have a capital gain someday, if your clients think that they might have a capital gain someday, then why wouldn't you tell your management team, your senior managers, you know, this many or less, right now, I'm hoping to have a capital gain someday and I need your help. And what we found is that that's a really like ultra scary topic for most owner-managers. You know, they would keel over and faint if they heard me speaking to you like like this right now, except their behavior is that at the end of the transaction, all of them bonus their management team with some kind of transaction bonus anyway. And if you look at the data, and if anyone in the audience would like the data, we will be happy to anonymize the data and send it to you and show you the data that we keep of showing you of what transaction value is and what percentage of it the owners gave to the management team as a gift. It wasn't a contract, it wasn't an ESOP, it wasn't anything. It to give, and it's typically between— it's between, well, 0 to 33%, and the average is 5%. So our position is, if you're going to give 5% of the transaction value to the management team anyway, why wouldn't you include them on the conversation earlier on and allow them to help you? And now you've lined up their compensation with yours, i.e., enterprise value. It could be— there's a lot of attorneys here in the room and on the call who are much more sophisticated in doing this than I would be, but why wouldn't you just stipulate what do you think the enterprise value is now and have a little pool and have that be something in the future? Just asking because those people can be so helpful and our experience is if you don't bring them in and you wait too long, you risk having them feel disrespected or have feelings be hurt or worse. And why, why do that since you're going to incentivize them anyway? Does that make sense to you or do people have questions about that?
