By Aly Abdel Baki, Director at Moonbase Capital
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When acquiring a business, the seller often remains involved to some extent. Their knowledge can be a valuable asset, but if not managed properly, it can also lead to challenges.
Here are some common scenarios that illustrate the importance of managing seller involvement effectively:
Scenario 1: The Seller Who Undermines the Business
In some cases, a seller may stay on in a role that handles client relationships, but if they are not fully committed to the sale, it can lead to problems:
- Client relationships may be compromised if the seller advises clients against working with the new company.
- False reports to regulators can create unnecessary challenges.
- Employee loyalty may remain with the seller, undermining the new leadership.
In such situations, it may be necessary to restructure the team to ensure control and stability.
Scenario 2: The Seller Who Creates Conflict
Giving the founder/ seller a large role (not even necessarily a board seat) can sometimes lead to issues:
- Disagreements over decisions can hinder progress.
- Challenges to authority can undermine new leadership, as employees may side with the founder/seller due to loyalty and a long history.
- Paralysis due to infighting can occur when the seller struggles to relinquish control.
This often happens when the seller has a strong emotional attachment to the business.
Scenario 3: The Successful Involvement of a Seller
In a more successful scenario, the buyer can benefit from the seller’s expertise without the drawbacks:
- The seller is given a consulting role with advisory responsibilities, limited decision-making power, and minimal operational involvement.
- They focus on specific areas, such as international sales, keeping them engaged without interfering in daily operations.
- Employees report directly to the new owner, ensuring clear lines of authority.
This approach allows the buyer to leverage the seller’s experience while maintaining control.
My advice to searchers:
Factor the seller’s involvement into your post-acquisition plan by ensuring you:
✔ Define the seller’s role carefully— ensure that they are no longer the public face of the business and limit their operational involvement.
✔ Establish clear leadership—employees must report to you, not the former owner.
✔ Minimize friction—a seller who won’t let go can hinder growth and create instability.
✔ Strike the right balance with earn-outs—make them challenging but achievable. If they’re too aggressive, the seller might argue you didn’t make a genuine effort to meet them, potentially leading to legal disputes.
While it’s important to assume a leadership role, the most effective acquirers typically spend six months to a year learning about the business before making significant decisions. However, it’s crucial to earn respect from day one by demonstrating a willingness to understand the employees’ roles while showing that you’re prepared to roll up your sleeves.
