What Does
Stuckholders Mean?
“Stuckholders” refer to business owners who are unable to sell their business without their continued long-term involvement. This term has a negative connotation and will usually result in a valuation discount that carries a significant deferred payment portion such as a vendor take back VTB and/or earn out.
Divestopedia Explains Stuckholders
In order to maximize purchase price, stuckholders must find ways to remove themselves from the operations of the business. This could include hiring a second in command (2IC) or productizing the companies service offering to be more process driven rather than founder driven.
Needless to say, potential buyers see a tremendous amount of risk with businesses that have stuckholders. For this reason, they will pay much less and will usually structure the purchase price with a significant VTB and/or earn out. The owners of these businesses will also be tied with long-term management contracts to ensure that processes are built into the business, so that the company will continue to generate similar levels of free cash flow once the stuckholder has left.