Selling 100% and Walking Away: No Longer the Only Way to Manage Succession.
Well, it doesn’t have to be that way—it’s possible to have your cake and eat it too.
Many owners assume that selling their business means selling 100% and walking away. They are often surprised to learn that this is not necessary. In fact, many buyers prefer that owners retain a stake in the company after the sale, as it signals confidence in the company’s future.
Here are a few common deal structures that allow you to sell while keeping some involvement:
1.
“SIMPLY” Sell Less Than 100%
Selling a portion of your company (less than 100%) is an option, but not always “simple”. Selling a majority (more than 50%) means you’ll no longer have (official) control, which has a whole host of issues to be aware of (that’s a whole other article). The devil is in the details so it’s crucial to work with an experienced M&A Advisor and M&A lawyer (not a family or real estate lawyer!) to ensure property shareholder agreements, board governance parameters and exit mechanisms are in place, should things not go as expected.
2.
Equity Rollover
This is a common structure when selling to a Private Equity (PE) buyer. In an “Equity Rollover”, the buyer sets up a new company (e.g., "ABC Co.") to acquire 100% of your business, but you “roll” a portion of the sale price into ownership of the new company (typically 10-20%). You cash out most of the value, continue to run the business, and keep a portion of ownership without immediate tax consequences on the “rolled” portion.
You benefit from the growth of the business (or the broader group of companies if part of a larger acquisition), thanks to the capital and synergies brought in by the buyer. The buyer prefers this approach since it keeps you invested and motivated to grow the company post-sale.
The “rolled” equity typically gets bought out during a sale down the road, typically at a higher valuation—a “second bite at the apple” that can sometimes be more valuable than the original sale value.
3.
“Staged” Sale with Upside
This structure is quite common. In a staged sale, you sell 100% of the business but receive 60-80% of the price upfront. The remainder is paid in installments (the "holdback") over a few years, often with performance-based bonuses tied to targets like revenue, gross profit, EBITDA or other agreed upon targets. This structure keeps you engaged post-sale while ensuring the buyer that the business will remain stable under your oversight.
This differs meaningfully from a traditional “earnout” (described below), which typically requires vendors to grow the business significantly (for the new owners) just to get paid out.
The upside bonuses can be significant, rewarding you for maintaining or growing the business, but these targets are typically more flexible than those seen in earnouts.
Holdbacks should never be "all or nothing." Instead, they should offer pro-rata or graduated payouts if targets are missed, with a "catchup" mechanism allowing later overperformance to offset earlier shortfalls.
4.
VTB’s and Earnouts
Vendor Take-Backs (VTBs) are essentially loans you provide to the buyer to help finance part of the purchase. VTBs usually earn a small interest payment and are paid out annually in chunks over a few years post-closing. We aim to keep the VTB below 25% of the total purchase price to manage risk. Given that VTBs typically “rank” behind senior bank debt, it's crucial to have a strong M&A or debt lawyer draft agreements to protect your rights should things go sideways.
Earnouts, on the other hand, can be more complex and risky if not handled properly. Basically, with an Earnout you leave a portion of your sale price "on the table," and it's typically only earned if the business grows after the sale, usually by a substantial amount.
Earnouts are useful when relying on lofty projections when determining valuation, but if you're selling based on historical performance, you shouldn’t rely on them to get paid what you have already earned.
Earnouts are only worth considering if you're confident in your company’s growth potential (particularly under new “co-ownership”). Again, not something you want to enter into without the guidance of an experienced M&A Advisor, and a good M&A lawyer to make sure its “papered” properly.
Whether we're helping clients sell or buy a company, we prioritize balance and fairness. A successful deal benefits both sides—if terms are unbalanced, issues are likely to surface in due diligence that kill a deal, or even worse, after the closing. Our goal is to create agreements that foster long-term success for everyone involved.