5 ms·

Reminds me of 4 lessons I read about start-up exits: Don't swap your stock for another. Don't deal with anyone with a question mark over their head. Ta

Reminds me of 4 lessons I read about start-up exits: Don't swap your stock for another. Don't deal with anyone with a question mark over their head. Take the lower valuation with the company you trust more. Don't celebrate until the cash is in the bank. All 4 rules were broken here. Seller beware. Reasons? When someone swaps a stock - they implicitly value it less than what they get. Hence if you swap your stock with someone else, the buyer implicitly states that your stock is worth more than theirs. Losing deal. Would you marry someone you didn't trust? No. Then why would you swap your baby for theirs? Certain return with someone you trust is 10x better than a "certain" return from a flaky agent. Nullify any agreements that don't put cash in the bank and give you more risk than reward. Take the breaker clause. Or lose everything.

damian2000 14y ago
No. 4 reminds me of a sign I still see in small businesses everywhere - "In God we trust. Everyone else pays cash."
ramchip 14y ago
Don't deal with anyone with a question mark over their head. What does that mean?
- confluence 14y ago
  If anyone has even the slightest doubt upon them - bad business dealings, shady companies, or just general concerns - do not deal with them. Life is too short to deal with shady characters - no matter how much money they give you. Not worth the risk.
- bootload 14y ago
  "... 'Don't deal with anyone with a X...' What does that mean? ..." When there's doubt, there is no doubt.
  - gaius 14y ago
    That's the first thing they teach you.
raverbashing 14y ago
The stock swap thing seems to be common in M&A It's done on the buyer's side, the seller company's partners get buyer's stock instead. It's not "your baby for theirs", it's more complicated
- writetoalok 14y ago
  > It's not "your baby for theirs", it's more complicated How so? Use the baby analogy (as it was indeed Baker's child), what was it in this case in your view?
  - raverbashing 14y ago
    Well, because you agreed to the sale, so "your baby" is already gone, stock swap or not. And you're potentially getting a stock with more potential than the ones you have (which are most likely going away). And most stock are not materialized as a physical certificate, so it's mostly "on paper" (and on controlling power of course)
einhverfr 14y ago
There can be reasons to take part-stock deals. For example part-stock deals also ensure that the acquired are invested in the purchaser. In essence by trading stocks they are buying something more valuable, your loyalty. The question is, how much do you want to give it. If my business were buying your business, I'd go for a part-stock deal just because it keeps your wealth tied in part to my firm's performance. This is what is being purchased that's so valuable: power. But this is usually a good thing for all involved because it ties everyone together financially and prevents the acquired from calling it quits and running off to do something that undercuts the acquirer. But all-stock deals? That suggests something is horribly amiss.
- confluence 14y ago
  All-stock deals are usually very fishy because it generally illustrates that the buyer, quite simply, does not value their stock that highly (and values the seller's stock way more - so why are they selling?). This is not a good sign. Part-stock deals make some sense - to tie people up (vesting/milestones/lock-up) and align them with your interests. However it really should be a mostly cash deal (say 80-20 or 60-40 cash/stock) if it's public liquid stocks in a great company (but they usually do straight cash deals - e.g. Facebook/Google/Apple). Trading private illiquid stock for private illiquid stock is a big no-no, unless it's a small amount (10-20%) with a high probability of a near-future liquid exit (IPO/public-cash acquisition).
  - einhverfr 14y ago
    I see it as a bad sign for a different reason. If a business is unwilling to part with significant operating capital for a purchase, that means either they can't be bothered (yeah, this might be valuable in the long run, why not? but not worth putting hard cash into now) or more likely that they can't afford to, which was pretty obviously the case regarding L&H..... Either way it's bad and shows either a lack of commitment or a financial hardship. In other words, I don't care too much about how much stock is purchased. I want to see the cash impact of the transaction because that is an important indicator of the health of the purchaser. "You want to go from 20% stock to 80% stock? Fine as long as I get the same amount of cash directly from you either way! You can just give me additional stock if you like..." ;-) Even if I was just an investor, if I heard a publicly traded firm bought another in an all stock transaction I'd be selling my shares.
bjornsing 14y ago
I agree with the sentiment, but... > When someone swaps a stock - they implicitly value it less than what they get. Hence if you swap your stock with someone else, the buyer implicitly states that your stock is worth more than theirs. Losing deal. If you're implying that M&A is a zero sum game and that every win for the acquirer is a loss for the seller then no, you're wrong. Your argument really applies to any sale (of anything): for the buyer to buy they have to value the goods more than the price, but the beautiful thing in trade is that the seller can still value the price higher than the goods, without anybody being wrong. Voluntary trade can create value out of thin air. In an M&A type stock swap deal the reason this works out is that the merger itself can create value. Merge a company with traction in the market with one with a killer product and you have something that's more valuable than the two separate companies.
- confluence 14y ago
  Obviously these are rules of thumb and do not apply to sophisticated agents that actually know what they are doing. > In an M&A type stock swap deal the reason this works out is that the merger itself can create value This is the exception not the rule. If you think you are a) sophisticated and b) in this rare situation - then disregard everything I have said. > Voluntary trade can create value out of thin air. If and only if both parties are sophisticated and value the exchanged items correctly. Trade can create value out of thin air. It can also turn value into thin air (booms/busts/fraud etc.). Capitalism and trade are double edged swords - all I want people to do is watch the downside while they grab the upside.

damian2000 14y ago

No. 4 reminds me of a sign I still see in small businesses everywhere - "In God we trust. Everyone else pays cash."

ramchip 14y ago

Don't deal with anyone with a question mark over their head. What does that mean?

confluence 14y ago
If anyone has even the slightest doubt upon them - bad business dealings, shady companies, or just general concerns - do not deal with them. Life is too short to deal with shady characters - no matter how much money they give you. Not worth the risk.
bootload 14y ago
"... 'Don't deal with anyone with a X...' What does that mean? ..." When there's doubt, there is no doubt.
- gaius 14y ago
  That's the first thing they teach you.

raverbashing 14y ago

The stock swap thing seems to be common in M&A It's done on the buyer's side, the seller company's partners get buyer's stock instead. It's not "your baby for theirs", it's more complicated

writetoalok 14y ago
> It's not "your baby for theirs", it's more complicated How so? Use the baby analogy (as it was indeed Baker's child), what was it in this case in your view?
- raverbashing 14y ago
  Well, because you agreed to the sale, so "your baby" is already gone, stock swap or not. And you're potentially getting a stock with more potential than the ones you have (which are most likely going away). And most stock are not materialized as a physical certificate, so it's mostly "on paper" (and on controlling power of course)

einhverfr 14y ago

There can be reasons to take part-stock deals. For example part-stock deals also ensure that the acquired are invested in the purchaser. In essence by trading stocks they are buying something more valuable, your loyalty. The question is, how much do you want to give it. If my business were buying your business, I'd go for a part-stock deal just because it keeps your wealth tied in part to my firm's performance. This is what is being purchased that's so valuable: power. But this is usually a good thing for all involved because it ties everyone together financially and prevents the acquired from calling it quits and running off to do something that undercuts the acquirer. But all-stock deals? That suggests something is horribly amiss.

confluence 14y ago
All-stock deals are usually very fishy because it generally illustrates that the buyer, quite simply, does not value their stock that highly (and values the seller's stock way more - so why are they selling?). This is not a good sign. Part-stock deals make some sense - to tie people up (vesting/milestones/lock-up) and align them with your interests. However it really should be a mostly cash deal (say 80-20 or 60-40 cash/stock) if it's public liquid stocks in a great company (but they usually do straight cash deals - e.g. Facebook/Google/Apple). Trading private illiquid stock for private illiquid stock is a big no-no, unless it's a small amount (10-20%) with a high probability of a near-future liquid exit (IPO/public-cash acquisition).
- einhverfr 14y ago
  I see it as a bad sign for a different reason. If a business is unwilling to part with significant operating capital for a purchase, that means either they can't be bothered (yeah, this might be valuable in the long run, why not? but not worth putting hard cash into now) or more likely that they can't afford to, which was pretty obviously the case regarding L&H..... Either way it's bad and shows either a lack of commitment or a financial hardship. In other words, I don't care too much about how much stock is purchased. I want to see the cash impact of the transaction because that is an important indicator of the health of the purchaser. "You want to go from 20% stock to 80% stock? Fine as long as I get the same amount of cash directly from you either way! You can just give me additional stock if you like..." ;-) Even if I was just an investor, if I heard a publicly traded firm bought another in an all stock transaction I'd be selling my shares.

bjornsing 14y ago

I agree with the sentiment, but... > When someone swaps a stock - they implicitly value it less than what they get. Hence if you swap your stock with someone else, the buyer implicitly states that your stock is worth more than theirs. Losing deal. If you're implying that M&A is a zero sum game and that every win for the acquirer is a loss for the seller then no, you're wrong. Your argument really applies to any sale (of anything): for the buyer to buy they have to value the goods more than the price, but the beautiful thing in trade is that the seller can still value the price higher than the goods, without anybody being wrong. Voluntary trade can create value out of thin air. In an M&A type stock swap deal the reason this works out is that the merger itself can create value. Merge a company with traction in the market with one with a killer product and you have something that's more valuable than the two separate companies.

confluence 14y ago
Obviously these are rules of thumb and do not apply to sophisticated agents that actually know what they are doing. > In an M&A type stock swap deal the reason this works out is that the merger itself can create value This is the exception not the rule. If you think you are a) sophisticated and b) in this rare situation - then disregard everything I have said. > Voluntary trade can create value out of thin air. If and only if both parties are sophisticated and value the exchanged items correctly. Trade can create value out of thin air. It can also turn value into thin air (booms/busts/fraud etc.). Capitalism and trade are double edged swords - all I want people to do is watch the downside while they grab the upside.