"*Article originally published on CityBizList"

Entrepreneurs dream of the big exit – to cash out and check out. Buyers implicitly understand this and try to mitigate the risk of the entrepreneur’s disengaging so that what they’ve bought doesn’t evaporate. The game is viewed profoundly differently by buyer and seller – for the former, it’s the beginning of the first quarter; for the latter, the end of the fourth… Our involvement in several recent sale transactions shows a consistent pattern to how these profoundly different perspectives of the same game play out.

Not in the Mix. I’m taking out of this ReSET those deals where strategic buyers have a management team in place to take over the business, or that bolt the acquired business onto existing operations. While the selling entrepreneurs are obviously important in such deals, success isn’t materially driven by their engagement after closing.

Testing the Playbook. For those buyers who realize they need the entrepreneur engaged and invested in the company after closing, a conversation plays out before getting to deal terms. At its most basic, the buyer is testing whether the sale is a “dump and run”. The challenge for the selling entrepreneur is to demonstrate a continuing commitment to the company’s growth after closing, by showing a desire to remain engaged and contribute for reasons well beyond simply babysitting any deferred payout. The challenge for the buyer is to test the sincerity of the entrepreneur’s commitment, to get viscerally comfortable with the entrepreneur’s future intentions.

Golden Handcuffs. There is little a buyer can do to validate an entrepreneur’s commitment to help after closing – you either believe or don’t what you’ve heard. The only real tool a buyer has to ensure continued engagement is to tie some portion of the business deal to the company’s performance after closing. Whether in the form of retained ownership or an earn-out or similar deferred payment – the buyer tries to ensure that an entrepreneur will remain engaged. Such deferred payments serve other goals as well – perhaps to stretch to a valuation desired by the seller or to serve as seller financing to reduce a buyer’s need for other acquisition capital. For those deals where the buyer truly needs the entrepreneur involved after closing, there is no alternative to that of financially entangling seller and buyer.

Culture Clash. In some ways what I’ve described is the easy part of this game. The challenge really lies in how seller and buyer sort through working together after the closing – sort of the deal version of sudden death overtime to a game being played simultaneously in the first and fourth quarters. Simply put – it isn’t the seller’s company anymore; someone else now makes decisions you use to and which directly impact your payout. The more valuable the payout is to the seller, the more critical it is to get the terms of this relationship worked through before closing (spoiler alert: this rarely happens before closing). But that’s the problem for the next ReSET.

With more than 25 years’ experience in law and business, Newt Fowler, a partner in Womble Carlyle’s business practice, advises many investors, entrepreneurs and technology companies, guiding them through all aspects of business planning, financing transactions, technology commercialization and M&A. He chairs the Board of TEDCO and serves on the Boards of the Economic Alliance of Baltimore, and Big Brothers Big Sisters of the Greater Chesapeake.