The first hundred days after the deal. What the price does not show

It was a summer Friday morning when the phone rang. The CEO of a company whose majority stake we had sold together to a financial investor asked to meet that same day.

Nothing bad had happened. The company’s results were good, the investor was behaving properly and nobody had cheated anybody. The CEO simply said that the first three months after the deal had been stranger than the deal itself.

Hiring a sales director required supervisory board approval, because his pay exceeded a threshold set in the agreement. So did a three-year lease, because it exceeded another threshold. A company car did not need approval, but it had to be entered in a schedule that someone then read. None of these things was a burden on its own. Together they meant that the CEO was now managing someone else’s assets, in which he himself held a minority stake. I have changed the details so that neither the company nor the parties can be identified.

An entrepreneur negotiates the price for six months. He lives with what he signed alongside the price for the whole of the fund’s investment period. Plans usually assume four years, and in practice it takes longer. According to Private Equity Info data, the median time for which US funds held companies they sold in 2025 was 5.9 years. In 2018–2020 it was 4.7 years.

What the entrepreneur reads last

In a sale of a majority stake to a fund, the parties sign two main documents. The share purchase agreement sets the price, the payment terms and the seller’s liability for the condition of the company before the deal. The shareholders’ agreement, followed by new articles of association or statutes, sets the rules of cooperation for the whole time the fund is a shareholder.

The entrepreneur gives these documents uneven attention. He reads the price and the payment terms many times. He goes through the representations and warranties, the statements about the condition of the company for which he is liable, with his lawyer. He usually reads the list of reserved matters (the decisions that require the investor’s consent), the monetary thresholds, the reporting obligations and the rules for appointing the management board once, at the end, when everyone just wants to sign. Liability for statements about the company’s past expires after an agreed period. The rules of cooperation between the shareholders shape the CEO’s work from the day the deal closes until the fund exits.

The first three months

In the first month the new shareholder takes stock. It asks for data the company has never collected: profitability by customer and product, costs by department, staff turnover, a schedule of contracts with their notice periods. This gives it a baseline against which it will measure progress. For a company run on intuition this comes as a shock, because much of this data does not exist in a form that can be handed over.

In many mid-sized companies the accounts department books costs as the invoices come in and focuses mainly on tax, while the owner judges the situation by the bank balance and the margin on the main products. The fund requires a monthly close of the books with accruals for costs settled once a year or not yet invoiced, such as annual bonuses and rebates. It also wants to see how much of EBITDA ends up in the bank account and how much gets stuck in inventory, in receivables from customers and in spending to replace machinery. If the purchase was partly financed with a bank loan, the bank monitors ratios calculated on the results of the acquired company, because its profits repay the debt. These ratios, known as covenants, go into the report every month. At the same time the rhythm of cooperation is set: the dates of supervisory board meetings, the deadline for the monthly report, the contact person on the fund’s side. This rhythm stays for years.

In the second month the first routine decision covered by the list of reserved matters comes up, for example a change in commercial terms with the largest customer or a larger purchase. In most cases the investor gives its consent. It takes two weeks, though, and requires a written justification and answers to questions. A company where decisions used to be made in fifteen minutes moves to a two-week cycle, and competitors do not wait in the meantime.

In the third month the managers start testing who really decides. For the first weeks people go to the former owner, because that is how it has always been. Then someone notices that he himself had to ask for approval, and within a week the news has gone round the company. From then on some of the managers weigh up whom it is worth talking to about a problem and whose opinion carries weight. If the owner stays on the management board and the investor is present and active, a dual power structure emerges that nobody planned. Companies avoid it where the owner and the investor agreed in writing, before signing, what the management board decides on its own and what requires supervisory board approval.

Clauses that weigh more than the percentage of shares

A sensible list of reserved matters covers strategic issues: a change in the line of business, acquisitions, sales of material assets, changes in share capital and debt above a threshold. An overly detailed one reaches down to individual commercial contracts. The CEO then has less freedom than a branch director in a large corporation. Following the shareholders’ agreement, the fund also writes this list into the articles of association or statutes, which has a specific legal effect. A contract that the CEO signs without the consent required by the articles remains valid as far as the counterparty is concerned, but the CEO is liable to the company for the breach. Breaching the articles also gives the investor a ready reason to dismiss the CEO, even if the contract itself turned a profit.

Monetary thresholds determine how often the CEO will have to ask for consent. They are usually calculated on the total value of the commitment over the full term of the contract, which is why an ordinary three-year lease can exceed the limit even though the monthly rent is small. A threshold set at half the value of the company’s typical contract means a request every week. The same list with a limit three times higher reduces this obligation to two requests a year.

The annual budget is the best protection for the management board’s independence. As long as the CEO stays within the budget approved by the supervisory board, he decides on his own about the investments and new hires it includes. Funds keep large commercial contracts and margin cuts for a key customer under a separate threshold anyway. The agreement should also say what happens when a new budget cannot be adopted on time. Usually the previous year’s budget then applies, although in a growing company its limits soon prove too tight.

The time spent waiting for a decision matters just as much. The shareholders’ agreement can state that if the fund’s representative does not object within an agreed period, consent is deemed given. Where the requirement for supervisory board consent has been written into the articles of association, the board’s silence alone cannot replace a resolution. The clause is then worded differently: the management board notifies the supervisory board of the planned contract and waits a set number of days. If the supervisory board does not adopt a resolution objecting within that time, the CEO may sign the contract. Calling a meeting in time then becomes the fund’s problem.

Reporting obligations define what the company reports, when and in what form. In a company with no financial controller, the monthly report together with answers to questions takes the CEO about three days a month, or 36 working days a year. That is almost two months of work that appears in no budget. Before signing, it is worth agreeing whether the investor will accept a report in the format the company already has, and who will pay for adapting it.

The rules for appointing and dismissing the management board determine how much the CEO’s position is really worth. The management board runs the company’s affairs independently. In a joint-stock company (spółka akcyjna), neither the general meeting nor the supervisory board may give it binding instructions. In a limited liability company (spółka z o.o.), the supervisory board is subject to the same prohibition, although the shareholders may restrict the management board by resolutions unless the articles of association exclude this. The fund, however, does not need binding instructions. It gets the same effect from a broad list of reserved matters and the right to dismiss a management board member, as a rule at any time.

The articles of association or statutes may limit the right of dismissal to good cause. Such a clause protects the CEO only if the grounds are listed precisely. For a founder with a minority stake, what happens to his shares after dismissal matters even more. Funds often propose that dismissing the CEO should give them the right to buy back his shares at a price that depends on the reason for leaving. For a no-fault departure (good leaver) the price approaches market value; for a departure for cause (bad leaver) it can be much lower. The mechanism comes from management incentive plans. Funds, however, also try to apply it to the stake the founder kept from his original shareholding, and this is one of the tougher points in the negotiations. If merely missing the budget is listed among the causes of a bad-leaver departure, one weaker year can cost the founder both his position and a large part of the value of his stake.

The one who stays and the one who leaves

A founder who stays on as CEO takes on the whole new order. In return he gains what he would not have built alone: management discipline, experience from other portfolio companies and capital for acquisitions. I have seen companies triple in size in four years under such an arrangement.

There is also a third variant. The owner sells 100 percent, but part of the price depends on the results of the next two or three years, so he stays in the company on a management contract. He then wants to hire salespeople quickly or buy a machine, so that results rise before the earn-out payment is calculated. The new owner takes a longer view or keeps an eye on debt, and may stop such spending at the supervisory board. The list of reserved matters and the thresholds then directly decide how much the seller will receive. I wrote about this in the context of earn-outs.

The one who leaves faces something less obvious. For the first months customers keep calling him, because they do not know they should call someone else. Employees write to him with questions. Then they stop. Entrepreneurs describe this moment as harder than signing the agreement itself. An owner who sells 100 percent and has no plan for the next two years of his own life often tries to influence his former company from outside, even though nobody has made room for him in the new structure.

What cannot be changed after signing

After closing, the seller loses two advantages he had during the negotiations: competition between several buyers and the option of breaking off talks. Changing the list of reserved matters or the thresholds later requires the new shareholder’s consent, and it mostly succeeds when the fund itself needs a concession on another issue.

The bylaws of the supervisory board and the management board are worth negotiating before signing, as an appendix to the shareholders’ agreement, because after closing the investor will adopt them with its own majority. Operational matters remain open: the layout of the monthly report, the calendar of meetings and the procedure for urgent consent requests. It is worth settling them in the first weeks, before practice settles on its own in a way nobody chose.

An extensive list of reserved matters rarely stems from bad faith on the buyer’s part. The investment team answers for each portfolio company to its investment committee. After closing, the distribution of risk also changes. The founder already has most of the price in his account, while the fund’s and the bank’s money is at work in the company. A CEO used to making decisions in fifteen minutes is a source of risk for the new shareholder until he has proven himself. The written justification and return calculation required by the supervisory board also benefit the company itself, because they stop projects nobody has costed and contracts signed at a low margin just to beat a competitor. Sometimes, after a year of good cooperation, the fund raises the thresholds on its own initiative. Nobody, however, will write that into the agreement.

Before signing

At Capital One Advisers we go through the provisions of the shareholders’ agreement with the entrepreneur before signing, item by item, and show him what an ordinary Tuesday will look like for him six months later. We start by counting how many decisions from the last quarter would have required consent under the proposed list and thresholds. We also check whether the limits of the management board’s independence are set by a clause in the agreement or only by a verbal promise.

When the founder stays on the management board, we link the terms of his dismissal to the price at which the fund can buy back his shares. Separately, we check how missing the annual plan affects the earn-out payment and the CEO’s position itself. We also analyze the drag-along right, which allows the fund on exit to sell the entire company and require the minority shareholder to sell his shares on the same terms. It is worth negotiating a minimum price below which the fund cannot use this right without the founder’s consent. The last matter is personal: a plan for the day the phone stops ringing.

The CEO who called that Friday morning did not regret the deal. He said he would do it again, only during the negotiations he would have spent longer on the pages of the agreement that were not about the price.

Advisers disagree on whether broader management independence is worth paying for with a concession on price. Some treat governance clauses as a currency: every higher threshold and every limit on the right of dismissal increases the fund’s risk, so the fund expects a lower price or deferral of part of the payment in return. Others reply that the price reflects the company’s potential and that an effective management board serves both sides. In their view, a seller who offers a lower price in exchange for higher thresholds signals to the fund that he fears oversight and wants to run the company outside the budget. At Capital One Advisers we put the list of reserved matters, the thresholds and the dismissal rules on the table together with the price, before the financial negotiations close. For a founder who stays with a minority stake for four or six years, day-to-day management independence weighs more than the last percentage point of the valuation. In a sale of 100 percent, the calculation depends on whether the seller leaves on the closing date or part of his payment still depends on results achieved under the fund’s oversight.

Service: M&A advisory on a company sale