Our long-time general manager assumes they are next in line to buy the company, but an external sale would yield twice the valuation. How do we navigate this decision on our exit runway without alienating our key operator or wrecking the business?

Question

Tyler Smith · Accepted Answer

You must separate emotional loyalty from the financial reality of your exit. If your general manager does not have the personal equity or institutional sponsor to pay fair enterprise value, an internal buyout forces you to act as an uncompensated bank through an enormous seller note.

Address this three years before you intend to exit, not thirty days before signing an LOI. Schedule a direct conversation outside your regular Level 10 Meeting schedule. Clarify that while an internal transfer is an option you will evaluate, your fiduciary duty to the business and your family requires a market-driven process to determine enterprise valuation.

Assess whether the operator genuinely has GWC for the chief executive seat under new capitalization:

- Do they Get the reality of running a leveraged entity?
- Do they Want the full financial and operational liability?
- Do they have the Capacity to drive profitability without your safety net?

If they cannot finance an outright buyout, offer them the opportunity to partner with an incoming private equity sponsor as the platform CEO, retaining rollover equity. Structure an executive retention agreement tied to transaction completion and a two-year post-sale retention milestone. This aligns their financial outcome with your external valuation, protects company performance during marketing, and removes the toxic assumption of an entitlement discount.