Key people: how not to lose the value you paid for
In many companies much of the value lives in the heads of a few people: they know the clients by name, they know how to solve the problem that is written down in no manual, they hold together relationships worth years of revenue. They are a real asset, and they do not appear on any line of the balance sheet.
What is left of an acquisition if, six months after signing, those people are no longer there?
The value that can walk out the door.
There are figures who, within an organisation, are worth far more than their formal role:
the technician who has the process in their head;
the salesperson who is the real reason the client renews;
the manager who holds the team together.
In family businesses this concentration often reaches its extreme, because the company and the entrepreneur are one and the same, and much of the value depends on their presence. When the company changes hands, all these people ask themselves the same question at the same moment: do I stay or do I look elsewhere? That is when a deal risks paying full price for a box that is starting to empty of the very thing that made it valuable.
What it costs to lose them.
The cost of a departure is never only that of finding a replacement. According to Gallup, replacing a person costs between half and twice their annual salary (Gallup, The Great Discontent), and for key people the most expensive part is the one that never enters that calculation: the knowledge that leaves with them, the relationships they take with them, the time lost while those who remain try to fill the gap.
In a deal, all of this becomes value eroded in silence, because the expected synergies slow down, long-standing clients start to look around and the business plan slips, without anyone being able to point to a single cause.
Why the risk peaks after the deal.
Uncertainty reaches its peak in the very months after the announcement, when key people are at once the most courted by the market and the most sensitive to a change they did not choose. Mechanisms such as lock-ups and earn-outs help to retain them on paper, yet they do not guarantee their energy or their will to stay fully involved, and the difference between those who remain genuinely engaged and those who merely honour a contract is enormous, and it is settled in those first weeks.
What pushes people towards the exit, moreover, is often the cultural distance between the two organisations, the first of the ways in which people hold or give way, which we explored in the article on culture as a business risk.
Looking at key people before signing.
For those leading a deal, the value lies in knowing in advance who the critical figures are, how much the company depends on them and how likely they are to stay:
for the buyer, this informs the price and points to who to back for the plan;
for the seller, presenting a solid team set to remain is one of the strongest arguments for defending the valuation at the table.
The first step is knowing who the value depends on.
Identifying the key people before signing, rather than counting them once they have already left, is what makes it possible to protect the value you are paying for, instead of discovering its fragility once the deal is done. This is the ground on which ASAP Italia supports those who live through these operations, within the wider picture of the article When ownership changes.
Want to understand how much a deal depends on its key people, and how exposed it is?