3 ms·
To dumb it down, what you’re describing is when a press release says a $1B acquisition price, but officially it’s technically a $500M acquisition, and a coincid
by lawnchair_larry 7y ago
To dumb it down, what you’re describing is when a press release says a $1B acquisition price, but officially it’s technically a $500M acquisition, and a coincidental $500M bonus/incentive pool that the acquirer is choosing to award to whoever they want, under whatever terms they want? That’s called a carve-out?
It would be nice if someone maintained a list of all of these “tricks” and what to watch out for in your options agreements. I try to pay attention to this as a layperson, yet I am frequently learning of more lingo and new deal structures that introduce a lot more risk to both founders and employees.
- mlyle 7y agoYes, but that's pretty rare, because it doesn't make much sense. A much more common carveout would be something like this: - A $15M acquisition of a distressed company that may very well be insolvent if the deal is not completed - $10M is owed to investors to repay liquidity preferences - A founder is gone who would get $1.5M of the remaining - Any reasonable escrow fund, etc, on the $3.5M that would go to the remaining shareholders is not enough for the acquirer to be sure they retain key talent. This deal can't be reasonably done with $15M split according to the capitalization table. So instead, the investors take $9M (10% haircut, since they're first in line for any fall-back plan); $4M goes to existing shareholders (20% haircut)-- including that missing founder who now gets $1.2M; $2M is held in an escrow for people that the acquirer needs to keep. This isn't a breach of fiduciary duty, because it's mostly being dictated by the acquirer and because no shareholder class ends up worse off than they'd be in any likely alternative.