How to think about underwriting and mitigating key man risk?

searcher profile

January 24, 2026

by a searcher from Pepperdine University in United States

I’m curious how others think about underwriting and mitigating key man risk in acquisition opportunities. I’m evaluating a deal with many attractive attributes (niche market, technical moat, stable demand), but with meaningful reliance on a small number of highly specialized employees in a niche manufacturing context. For those who’ve pursued or closed similar deals: • How did you assess acceptable levels of key man risk? • What mitigation strategies proved most effective? • At what point did key man risk become a deal breaker versus a solvable problem?
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commentor profile
Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
Each situation is different. In general, all businesses have some risk, whether it is employee, technology, customer, location, key manger(s), 100+ more. One way to analyze in your case is ... why are those employees still with the business? Happy to talk various options.
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Reply by an investor
from Harvard University in Santa Fe, NM, USA
Use rollover and equity incentives and non-competes to retain key talent. Also buy key man life insurance. Size the policy to match the amount of debt at closing, if possible.
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