We are entering the due diligence phase and worry our primary operations director will realize they hold all the leverage and demand an unreasonable salary increase or equity stake before agreeing to speak with the buyer. How do we handle this key-employee leverage during negotiations without risking the transaction?

Question

Tyler Smith · Accepted Answer

Key-person leverage is a common challenge during due diligence. If a single employee knows that their cooperation is essential for the deal to close, they may try to exploit the situation. To prevent this, you must align their personal incentives with the transaction long before due diligence begins.

The solution is to design a formal retention agreement during your exit runway. This agreement should offer a meaningful financial payout that is strictly contingent on two conditions: staying with the company through the close of the sale and meeting performance targets during a specified transition period. This turns their potential leverage into a mutual commitment to success.

Additionally, make sure your operations are fully documented. If your processes are clear and your operating systems are healthy, no single employee should hold the power to shut down the business. By systemizing your workflows and using a structured retention plan, you reduce the risk of extortion and demonstrate to the buyer that your operations are resilient and secure.