4 ms·

How does this work from an employee point of view? Are they compensated in the buyout? Do they get to do any negotiation with their new employer? The cynic i

How does this work from an employee point of view? Are they compensated in the buyout? Do they get to do any negotiation with their new employer? The cynic in me thinks this could easily be a raw deal for non-owners.

philwelch 14y ago
There are stories of them having to interview for their own jobs.
- diego 14y ago
  That is standard practice with any acquisition. If Company A acquires company B which has 1000 employees, it almost certainly won't want to retain them all. There will be lots of redundancy, employees who wouldn't be needed at Company A for whatever reason, etc.
georgemcbay 14y ago
I'm sure it depends greatly on the exact situation. I worked for a company (Company A) where some deal was worked out with another company (Company B) where Company B was free to hire all of Company A's employees and took over Company's A existing office lease and such but didn't outright buy Company A (they didn't want to own or continue working on the same projects, they just wanted all of Company A's employees to work on something new). Company B basically just hired all of Company A's employees for their existing salaries with no individual negotiation for raises or bonuses. Almost all of Company A stayed around to begin with because Company A had a lot of smart people who enjoyed working together, but within 6 months a lot of people (including myself) bounced from Company B for a whole host of reasons. All in all, for me the situation was neutral. Company A was basically dead in the water without Company B anyway, but all that really happened for me is it delayed my having to find a new job for a few months. After deciding to leave Company B I quickly found a new job with a good raise over what I was making so that's cool. Of course, YMMV, I'm sure every deal like this is very different.
anamax 14y ago
> How does this work from an employee point of view? Are they compensated in the buyout? It depends on the employee. The employees that the acquirer wants are treated differently than others. Both are paid for their stock and vested options. "The wanted" may get retention bonuses, additional grants, etc. > a raw deal for non-owners. What do you mean by "non-owners"? Are you referring to employees without any options or stock or to folks that don't have much in the way of options/stock? Stock/options owners are compensated per their ownership. Of course, the interesting question is how well the stock/options owners are treated, and there are different classes, hence the whole section about VC liquidation preferences.
- edabobojr 14y ago
  "Non-owner" was a poor choice of terms. I was thinking more in terms of the little guys who have at most a 1-2% ownership stake in the company.
  - anamax 14y ago
    > was thinking more in terms of the little guys who have at most a 1-2% ownership stake in the company. They get 1/10th the money that folks who own 10-20% get. What do you think should happen? There's only 100%. Some investors have liquidation preferences over others. The buyer, of course, is free to give money to people post-deal as it sees fit.
    - patio11 14y ago
      They get 1/10th the money that folks who own 10-20% get. That's engineer math, but not financier math. People at 10-20% are in the room when terms are decided upon, people with 1-2% are typically not. There are a variety of mechanisms by which 1-2% of an acquisition can, in a few failure modes, evaluate to nothing. Here's one: You own 1% (by current dilution) of a company. This company has not done well. There exists a company which wants to buy it. The co-founders collectively own 60%, with approximately 30% being owned by investors, and approximately 10% held in aggregate by employees. You watch the M&A team, VC partners, and founders walk into a room. Two hours later, they walk out, and everyone looks fairly happy. You overhear the VC say "$20 million." You think you're getting $200k, right? Would it surprise you the next day when you're given a contract to sign and told that you've been allocated a $10k signing bonus with the new company? And that this is, by the way, it? How the heck did that happen? The VCs were a little displeased with their return, since this company did poorly, so they played hardball with your founders. The VCs got $10 million. (Check those percentages again. Yeah. I know.) This represented 100% of the purchase price, and as it didn't clear the VC's liquidation preference, the common stock is valueless. You and the founders hold common stock. For their participation in the deal, the founders were guaranteed 3x $3 million signing bonuses with the acquirer. This leaves $1 million to pay the lawyers, cover the accountancy costs, etc etc etc. But hey, because you're such a nice guy, despite your options being worthless they fought hard for you and convinced the acquirer to cut a check for three whole months of your old salary. You would be, of course, free to decline this bonus. The door is on your left. And, to be fair, you did better than another 1% owner of the company -- employee #1, who went on to greener pastures a year ago. His shares have vested. But he was "disloyal" and "didn't stick it through", so hey, no check for him at all.
notbitter 14y ago
The cynic in you is right. The employees have power in an acqui-hire, but they don't negotiate as a group.

philwelch 14y ago

There are stories of them having to interview for their own jobs.

diego 14y ago
That is standard practice with any acquisition. If Company A acquires company B which has 1000 employees, it almost certainly won't want to retain them all. There will be lots of redundancy, employees who wouldn't be needed at Company A for whatever reason, etc.

georgemcbay 14y ago

I'm sure it depends greatly on the exact situation. I worked for a company (Company A) where some deal was worked out with another company (Company B) where Company B was free to hire all of Company A's employees and took over Company's A existing office lease and such but didn't outright buy Company A (they didn't want to own or continue working on the same projects, they just wanted all of Company A's employees to work on something new). Company B basically just hired all of Company A's employees for their existing salaries with no individual negotiation for raises or bonuses. Almost all of Company A stayed around to begin with because Company A had a lot of smart people who enjoyed working together, but within 6 months a lot of people (including myself) bounced from Company B for a whole host of reasons. All in all, for me the situation was neutral. Company A was basically dead in the water without Company B anyway, but all that really happened for me is it delayed my having to find a new job for a few months. After deciding to leave Company B I quickly found a new job with a good raise over what I was making so that's cool. Of course, YMMV, I'm sure every deal like this is very different.

anamax 14y ago

> How does this work from an employee point of view? Are they compensated in the buyout? It depends on the employee. The employees that the acquirer wants are treated differently than others. Both are paid for their stock and vested options. "The wanted" may get retention bonuses, additional grants, etc. > a raw deal for non-owners. What do you mean by "non-owners"? Are you referring to employees without any options or stock or to folks that don't have much in the way of options/stock? Stock/options owners are compensated per their ownership. Of course, the interesting question is how well the stock/options owners are treated, and there are different classes, hence the whole section about VC liquidation preferences.

edabobojr 14y ago
"Non-owner" was a poor choice of terms. I was thinking more in terms of the little guys who have at most a 1-2% ownership stake in the company.
- anamax 14y ago
  > was thinking more in terms of the little guys who have at most a 1-2% ownership stake in the company. They get 1/10th the money that folks who own 10-20% get. What do you think should happen? There's only 100%. Some investors have liquidation preferences over others. The buyer, of course, is free to give money to people post-deal as it sees fit.
  - patio11 14y ago
    They get 1/10th the money that folks who own 10-20% get. That's engineer math, but not financier math. People at 10-20% are in the room when terms are decided upon, people with 1-2% are typically not. There are a variety of mechanisms by which 1-2% of an acquisition can, in a few failure modes, evaluate to nothing. Here's one: You own 1% (by current dilution) of a company. This company has not done well. There exists a company which wants to buy it. The co-founders collectively own 60%, with approximately 30% being owned by investors, and approximately 10% held in aggregate by employees. You watch the M&A team, VC partners, and founders walk into a room. Two hours later, they walk out, and everyone looks fairly happy. You overhear the VC say "$20 million." You think you're getting $200k, right? Would it surprise you the next day when you're given a contract to sign and told that you've been allocated a $10k signing bonus with the new company? And that this is, by the way, it? How the heck did that happen? The VCs were a little displeased with their return, since this company did poorly, so they played hardball with your founders. The VCs got $10 million. (Check those percentages again. Yeah. I know.) This represented 100% of the purchase price, and as it didn't clear the VC's liquidation preference, the common stock is valueless. You and the founders hold common stock. For their participation in the deal, the founders were guaranteed 3x $3 million signing bonuses with the acquirer. This leaves $1 million to pay the lawyers, cover the accountancy costs, etc etc etc. But hey, because you're such a nice guy, despite your options being worthless they fought hard for you and convinced the acquirer to cut a check for three whole months of your old salary. You would be, of course, free to decline this bonus. The door is on your left. And, to be fair, you did better than another 1% owner of the company -- employee #1, who went on to greener pastures a year ago. His shares have vested. But he was "disloyal" and "didn't stick it through", so hey, no check for him at all.

notbitter 14y ago

The cynic in you is right. The employees have power in an acqui-hire, but they don't negotiate as a group.