Key Man Insurance

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Key Man Insurance

 

The deal was almost done.  The owner was asked if he has prepared his key man for the transaction.  Specifically, he was asked if he had promised the key man a bonus for sticking around for 12 months to make sure that the new corporate owners would transition well into the client base and management team. 

 

This was a rich deal for the owner.  The owner assured us that he had generously compensated his key man.

 

Days before the transaction was to close the key man quit and moved across the street to another plating company.  The owner had thought our concerns overblown and had in fact done nothing to incentivize his key man. 

 

This deal fell out of bed with a non retrievable thump.

 

Tightness of wallet cost this seller millions of dollars (and nearly a heart attack) when his deal collapsed when the key man left.

 

In trying to patch up the transaction and talking with the key man, I discovered that he would have been happy with a small amount of money and a little more title but he was felt damaged by being treated like part of the woodwork.   Due diligence is more than validating the numbers. 


Have something to add? 
Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.                                                                                                                                                                                 Brought to you by;                                         www.packardacquisitions.com
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One thought on “Key Man Insurance

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  1. This is an unfortunate story, especially because it could have been avoided inexpensively.

    I typically see a stay bonus used with the bonus being between 50% and 100% of the annual salary of the key person.

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