An off-market founder isn’t a motivated seller. They’re one who is reluctant. Their business is their legacy, their staff, and often their life, meaning price alone rarely gets the deal done. 

That’s where deal structuring comes into play. A founder buyout has to balance two things: the seller’s succession goals and the buyer’s risk protection. 

Get the structure on point, and both sides win. Get it wrong, however, and even a fair price can quickly get rejected. 

Why Founder Deals Need Different Structures

A broker-listed seller has already decided to exit. A founder approach off-market, on the other hand, hasn’t. 

Because of this, the deal has to answer questions a listed sale never faces: 

• What happens to whoever is working there now? 
• Who will run the business next year if the founder isn’t there? 
• Does the founder stay around or do they get completely removed? 
• Do the buyer and seller agree or disagree on the value of the deal? 
• What structures can be used to align both the buyer and the seller? 

A straight cash offer doesn’t answer these questions. It just suggests the expected value that the seller thinks the business is worth. 

An offer that includes a proper valuation of the business as well as a structure that benefits both parties, on the other hand, is much more powerful. 

Three Structures That Keep Founders Invested

There are three structures that help solve a different problem, and most founder deals use more than one. 

• Rollover Equity: The founder keeps the minority stake after closing. They get most of their money now and share the upside later, which keeps them motivated through the business’s transaction. 
• Earnouts: Part of the price is tied to future performance. If the business hits the targets, the founder can claim their earnout and walk away with the money, and the buyer never overpays for performance that ‘might’ happen. 
• Seller Notes: The founder finances part of their own price, which is paid back over an agreed schedule. The buyer needs less capital, and the founder’s willingness to wait provides buyer confidence. 

Though different, each structure is similar. They ensure the founder is motivated by the outcome, improving the transaction period for the buyer. 

Aligning the Succession, Not Just the Price

Money can only help the deal structure so much. The human structure needs to be aligned as well. 

A founder who feels respected in a hand-off is more likely to agree to the deal. A founder who feels bought out is more likely to resist, regardless of the offer. 

Succession alignment means agreeing on the transition timeline, the founder’s role after closing, and what happens to the team and name. 

Structuring Deals With OCX Advisors

Off-market deals provide excellent opportunity, but it comes at a cost. They’re difficult to navigate without proper procedures and structures. 

Our M&A advisory team at OCX Advisors can help with exactly that. For more information on how we can help, contact us today.