Deals Often Depend on People Who Haven't Committed to Staying

Diligence reports almost always include a section on key employee risk. It names the people the business depends on, notes that their departure would be disruptive, and recommends a retention agreement or an earnout tied to their continued involvement.

That recommendation usually ends the conversation. It might identify the risk, but it does not tell the board what those people actually intend to do after close.

I once worked through a deal where the buyer sat down with three people the business depended on, and asked each of them plainly what they intended to do once the deal closed.

The first said that if the buyer managed him on metrics and otherwise left him alone, he would be happy to keep running the business indefinitely. The second said, honestly, that he did not expect to be around in a year. The third said he was leaving the day the deal closed, no matter what the paperwork said.

All three had different answers, but the retention agreement treated all three exactly the same.

An Agreement Is Not a Commitment

A retention clause is written by the buyer's lawyers, and the terms tend to follow a fairly standard pattern: a percentage of comp, a schedule tied to time or performance. It reflects what the buyer is willing to pay for someone to stay, not what that person has actually decided to do.

Signing an earnout is not a promise to stay. It is an agreement to be paid a certain way if the person stays, and nothing stops them from walking away and forfeiting the payout the moment it no longer makes sense to them. Someone else can have no contractual incentive at all and fully intend to stay for years, for reasons that have nothing to do with the payout.

Asking someone directly does not solve this either. A verbal answer is not binding, and people change their minds as circumstances shift. A yes in March is no guarantee in September.

None of that makes the answer certain, but it gives the board something real to plan against, which an assumption does not.

Why This Question Usually Doesn't Get Asked

Part of it is discomfort. Asking someone directly, "Are you actually staying?" can come across as implying you already doubt their loyalty, even when that is not the intent. And once someone tells you they might leave, that is not something you can pretend not to know anymore. You have to do something with it: restructure the deal, adjust the price, have harder conversations that would have been easier to avoid.

There is also the process itself. Bankers and intermediaries are built to keep a transaction moving, and a candid conversation about someone's intent to leave introduces exactly the kind of friction that process is designed to avoid.

And often it comes down to the retention agreement already being on paper, which makes it easy to assume the problem has been handled and move on.

None of those are unreasonable instincts, but they are also how a board ends up learning what someone actually intended to do only after the deal has closed and the person is already gone.

Finding the Right People to Ask

Most of these conversations, when they happen at all, stop at the CEO or the founder. The person who holds the largest customer relationship, or the one who actually knows how the plant runs day-to-day, is often two levels down the org chart and never gets asked anything directly.

A diligence process that only interviews the top of the chart can miss the person whose departure would matter most. The org chart tells the buyer who has the title. It does not tell them who the work actually depends on, and those are not always the same person.

A more reliable way to find the key employees is to ask a different question. Instead of asking who manages this function, ask who customers would call directly if something went wrong. Whose name comes up when employees explain how a difficult account or a difficult process actually gets handled. Ask what happens to a specific relationship or process if a particular person takes a two-week vacation.

The answers to those questions tend to point to the same handful of people every time, and they are not always the people with the senior titles.

Getting a Real Answer, Not a Guarded One

Timing changes what kind of answer comes back. Ask too early, before there is a real deal on the table, and people respond to uncertainty rather than to anything specific. There is hesitancy to broach the subject on both sides. Employees don't know the buyer's intent and don't want to complicate the sale with their own personal concerns. Buyers want an honest answer from key employees early, before a decision to proceed has been made. But the most honest answers usually show up once the deal is real enough that staying or leaving has become an actual decision rather than a hypothetical one.

Who asks and when matters just as much. Sometimes it gets broached in general terms as early as a get-acquainted dinner between the two management teams. Once it comes time for the one-on-one discussions with key employees as part of HR diligence, someone from the selling business, usually a manager or leader this person already trusts, should make the introduction. A stranger from the buying side asking about someone's future might not get an honest answer. But whoever makes that introduction should step out of the room once it happens, and the conversation itself should happen directly between the deal team and the person, not relayed secondhand or summarized after the fact.

This is not typically a conversation board members have themselves. It is a conversation the deal team has on the board's behalf, and what the board needs afterward is what was actually said, not a summary filtered through someone else's read of how it went.

That conversation does not need to be complicated. Do you intend to be here in twelve months, and what would change that? What would need to be true for you to want to stay past any earnout period? If you left tomorrow, what would the business lose that is not written down anywhere?

The buyer's team also needs to spend time with each key employee to decide whether to keep the team together or plan for changes once the transaction closes.

The answers to those three questions tend to reveal more about the real risk in a deal than most of the financial model does, and they cost nothing to ask.

Three Answers, Three Plans

The three answers from that earlier example are not unusual. Most key employee conversations land within that same range, and each one calls for a different response, not a single generic retention plan applied to everyone.

The person who is willing to stay under specific conditions has just told the buyer exactly what the integration approach needs to look like. If he wants to be managed on metrics and left alone, the buyer's plan cannot involve folding him into a new reporting structure or set of processes within the first ninety days. The condition is the integration plan, and ignoring it is how a buyer loses someone who was never a flight risk to begin with.

The person who is honestly uncertain, who does not expect to be around in a year but has not made a final decision, is a known transition to plan for on a rough timeline, a very different task than reacting to a surprise resignation. The buyer can begin identifying or developing a successor now, with time on its side.

The person who has already decided to leave at close is different from the other two. That answer does not just change the transition plan; it changes what the deal itself should look like.

When Someone Says They Plan on Leaving at Close

If someone says they're leaving, most buyers adjust the onboarding plan, add a transition timeline, and move on, without asking what it should do to the price and structure of the deal itself.

Part of why this gets missed is where the information lives inside the buyer's own process. A key employee interview is usually conducted by HR or the integration team, while pricing and structure are negotiated by a separate group working from the financial model. The finding is logged as something to manage after close, and it never makes its way back to whoever sets the price.

When the person leaving is the reason the customer relationships hold, or the reason operations run the way they do, the buyer is not purchasing the business it thinks it is. It is buying a version of that business that will look different the day after close, and that difference belongs in the price, not just the transition plan.

The same logic applies to structure. An earnout based on revenue targets means little if the person capable of hitting those targets has already decided not to be there during the payout period. In that case, the more honest response is not a bigger incentive aimed at someone who has already decided to leave. It is a smaller price, a longer required transition period built into the agreement itself, or in some cases, walking away from the timeline until the buyer has its own plan for running that relationship without the incumbent.

A departure disclosed during diligence belongs in the negotiation, before the price is set, not as a footnote to be handled once the business is already owned.

What This Requires of the Board

Before capital is committed, the diligence file should show what each key employee said when asked directly by the deal team, what conditions they attached to staying, and whether that answer changed the price, the structure, or the transition plan, not only the onboarding schedule. And because an answer given in diligence is not a guarantee, that same conversation is worth having again near close, so the board notices if anything has changed rather than discovering it after the fact.

If the file only shows a retention agreement and no record of an actual conversation, the board is still relying on the same assumption the agreement was supposed to replace.

What actually protects the deal is not the signature on the agreement, but what the board does with what each person actually said.