What happens after the champagne is popped? Part 3

In the prior two installments of the blog What happens after the champagne is popped? Part 1 and Part 2, we discussed some of the important elements to consider and prepare for after a buyer closes an asset purchase transaction. In this installment, we shift gears and assume the business acquisition was structured as a stock purchase such as in a family and some employee transitions.

As a refresher, in a transaction structured as an asset purchase, the buyer is acquiring some if not all of the assets of the seller, and assuming some, if not all of its liabilities. The asset approach allows for buyer selectivity in terms of the liabilities they are willing to accept. The employees are all fired and presumably rehired unless you know, as the buyer, that cuts or changes will be made immediately.

In a deal structured as a stock purchase, the buyer doesn’t have the luxury of picking and choosing which assets and liabilities she or he is going to assume. The employees arrive on the first day just like they always did. Just like when you buy shares in Apple or Facebook, you assume the risks and rewards of ownership — hook, line, and sinker. 

This approach makes some of the day one activities and needs described earlier in the series unnecessary. For example, the employees remain employed so there is no need to rehire, re-establish benefits, or complete paperwork in that regard. Daily operations may continue as always if the new owner chooses, and the information systems used the day before the close may continue to be used the day after with no modification.

Nonetheless, a change in stock ownership, particularly with a change in control, warrants similar plans for day one and the first 100 days. Communication with employees, impacted customers, and suppliers is just as important.

Specific items to consider that are unique to acquisitions structured as stock deals include:

  • If the deal was for less than 100% of the shares, what role if any will the original shareholder(s) play in the “new” company? Has that been agreed to ahead of time in clear and certain terms? How will decision-making be handled in the future?
  • What risks did the new owner take on that may be problematic? For example, are there contingent liabilities lurking such as warranty issues, lawsuits, or environmental concerns? Are there underperforming products, territories, or employees that need to be addressed right away?
  • Are there contracts or agreements that were assumed that are challenging? What issues around the change in control arose in due diligence? Are there particular vendors or customers that need continued attention due to language in the agreements?
  • What employment changes are to be made? Are there employment law risks that are present that need to be managed? For example, how will the employer ensure that terminations are handled well, and any risk of employee claims of discrimination or wrongful discharge is mitigated?



In a family-owned business or scenario where key employees become shareholders, the dynamics between the now and next generations shift in terms of responsibilities, power, and roles. This demands careful planning and attention as well. For example:

  • How well does the next generation understand what it means to be an owner? Each new owner deserves to be trained on the changes that occur in how s/he is:
    • Compensated — the amounts and timing of base payroll, bonus payments, and/or distributions;
    • Liable for taxes of the corporation, particularly if it is a pass-through entity, and the appropriate personal cash management to make estimated tax payments;
    • Responsible for debt and potential personal guarantees associated with the debt; and
    • Responsible for other liabilities of the business.
  • How well does the new owner understand the financial state of the business? Due diligence is often neglected or downplayed in family-business transitions between the generations. What financial challenges are now “theirs”? Do they understand how the business cash flows? Makes a profit? Do they know how their role contributes to the financial health of the company?
  • How will responsibilities shift from the current generation to the next? Has the next generation been adequately prepared or is the stage set for a dump-and-run?
  • How will decision-making change? What authority does the new owner have, or still not have, as a shareholder? What authority does the current generation have to let go of? How will they make sure that they do let go of it?
  • How will differences in opinion be handled?

There’s much to think about. Regardless of the form of the transaction — asset or stock — buyers are stepping into a whole new world as soon as the champagne glass goes down.  It’s much, much more than a transaction. It’s a transformation, deserving of careful planning, diligent preparation, strong communication, and transparency.

So, buyer, be aware.


Do you know what the state of owner readiness is in the state of Wisconsin? The Wisconsin Chapter of the Exit Planning Institute just launched its State of Owner Readiness Survey!

If you are a business owner, click Wisconsin State of Owner Readiness Survey to take the survey now! (It’ll take less than 15 minutes and give you some great food for thought.)

Feel free to forward the blog/link to all the business owners you know and ask them to participate too. Results will be shared in November!

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