"If a large proportion of value sits with one or two individuals, buyers may perceive greater risk around continuity post-transaction."

Where dependence is high, this often leads to downward pressure on valuation and a greater likelihood of conditional deal structures, such as earn-outs or deferred consideration tied to the continued involvement of those individuals.

​

Succession and Management Depth

Closely linked to key person risk is the strength of succession planning and management depth. Buyers place significant value on businesses that have a capable team in place, with clearly defined roles and responsibilities.

​

A well-structured organisation, where decision-making is distributed and systems are embedded, gives buyers confidence that the business can operate independently. This reduces perceived risk and supports a higher valuation multiple.

​

Conversely, where there is limited succession planning or a lack of senior management depth, buyers may:

​

• Require the founder to remain for a defined period

• Introduce earn-outs linked to performance under their continued leadership

• Adjust valuation to reflect execution risk

In extreme cases, weak management infrastructure can deter buyers entirely.

​

Impact on Deal Structure

These factors often play out most clearly in deal structure. Where key person reliance is high, buyers may seek to protect themselves through:

​

• Earn-outs, requiring founders to remain and deliver performance targets

• Deferred consideration, linking payment to future stability

• Employment agreements or retention incentives, ensuring continuity

While these structures can help bridge valuation gaps, they also increase uncertainty for the seller and can complicate the transition.

​

In contrast, businesses with strong, independent management teams and clear succession plans are more likely to achieve higher upfront cash consideration and cleaner exits, with less reliance on contingent payments.

​

The Role of an Advisor

​

An experienced advisor plays a crucial role in identifying and managing these risks early in the process. They can help founders:

​

• Assess perceived key person risk from a buyer’s perspective

• Support the development of a stronger management structure and succession plan ahead of sale

• Position the business to emphasise team strength rather than individual reliance

During the transaction, advisors also help manage buyer concerns, framing key person involvement in a constructive way and negotiating deal terms that balance continuity with fairness. For example, they may push to limit the duration or conditions of earn-outs or use competitive tension to improve the proportion of upfront consideration.