Looking at M&A Aftermath

COMMENTS

Newest First | Oldest First | Threaded View

Page 1 / 37 > >>

Stevery 12/5/2012 | 3:14:15 AM

re: Looking at M&A Aftermath For those wondering what happened to the stock options, Laurel employees held common stock, which looks to have been rendered useless as the preferred money came out first.

If the employees indeed were screwed in this fashion, they should run (not walk) to the exit.

You have some mightily unethical folks who just royally screwed the common shares, and you're supposed to work your ass off to make them wealthier?

It is standard to give the common off a decent chunk, despite the liquidation preferences.
Perhaps the acquirers have not done many deals?

Reply | Post Message | MESSAGES LIST | START A BOARD

vermillion 12/5/2012 | 3:14:14 AM

re: Looking at M&A Aftermath CHUMBAWUMBA!

I just love sayin' that.

Anyway, on the post-merger head count issue, I recall being bussed to a large sports arena, and being treated to a pre-screened Q&A session with the corporate execs. The CEO promised to be captain of the ship and see it through the rough sees to a safe harbor. Now the captain has been demoted in a mutiny, and most of the crew walked the plank long ago.

Anyway, to top it all off, at the time they screened a video of happy employees, set to the tune of, you guessed it..."I get knocked down, but I get up again, no they're never gonna keep me down..."

Now the LR monkey's gonna be shaking his tail to that tune for the better part of a month, but the rest of us better channel that energy into our job search!

"I get laid off, and I'm laid off again, no they're never gonna keep me on..."

CHUMBAWUMBA!
-v

Reply | Post Message | MESSAGES LIST | START A BOARD

vermillion 12/5/2012 | 3:14:14 AM

re: Looking at M&A Aftermath I know of a similar case where common stock holders got options in the company making the acquisition and did OK out of it.

Options are supposed to be an incentive for loyalty to the employer anyway. You stay on board, you benefit. It's no longer a get-rich-quick scheme.

Too bad, but that's the way it is.
-v

Reply | Post Message | MESSAGES LIST | START A BOARD

Stevery 12/5/2012 | 3:14:14 AM

re: Looking at M&A Aftermath It's no longer a get-rich-quick scheme.

More importantly, it's no longer a behave-ethically scheme.

Trying to make money from people who just screwed you is not worth the headache. You'll make more money elsewhere, and live longer besides.

Reply | Post Message | MESSAGES LIST | START A BOARD

fiber_r_us 12/5/2012 | 3:14:11 AM

re: Looking at M&A Aftermath ECI is a public company. The options they got from ECI are no better than what they would have got if they would have simply joined ECI from the outside. There was no reward for the effort put-in at Laurel. They could probably do better (option wise) by just joining Juniper or Cisco.
The retention "bonus" is a joke, a little over a month's salary, if you stay for two years!

Some deal!

Reply | Post Message | MESSAGES LIST | START A BOARD

moose 12/5/2012 | 3:14:07 AM

re: Looking at M&A Aftermath >>There was no reward for the effort put-in at Laurel.

What is the appropriate reward for turning $100M plus into $75M? Just curious.

Reply | Post Message | MESSAGES LIST | START A BOARD

Stevery 12/5/2012 | 3:14:05 AM

re: Looking at M&A Aftermath What is the appropriate reward for turning $100M plus into $75M? Just curious.

It depends on the timing. If the investment was at the height of the bubble, then notice that a $100M investment in the benchmark nasdaq would be worth about $40M as of today. The team managed to preserve 75% of the value as opposed to 40%. A common take should be minimally about 33% of the difference, or about $12M.

The real question is how did it the deal get done with common = $0. Think about the three parties at the table and their motivations:

1. Investors: Want the maximum dollars for their shares. Won't interact with the acquirer after the deal.

2. Common shares: Want maximum dollars for their shares. Will continue to interact with the acquirer after the deal.

3. Acquirer: Wants to pay minimum dollars for the company. They can either pay their dollars to the
a. Investors, who they won't see again, or
b. Common, who they will see again.

Why on earth would an acquirer ever want to shaft the people coming in the door? In every case I've ever seen, it's because there is another connection between the Acquirer and the Investor. For example, someone in the Aquirer's management is a limited partner with the investors and is seriously conflicted.

Like I said before, run (do not walk) to the exits. People that deal like that are not worth the headache.

Reply | Post Message | MESSAGES LIST | START A BOARD

fiber_r_us 12/5/2012 | 3:14:04 AM

re: Looking at M&A Aftermath >What is the appropriate reward for turning $100M plus into $75M? Just curious.

Stevery is on the right track. The employees should be rewarded for their effort over the last five years, at the expense of the investors if neccessary. To no do so, merely pisses the employees off and will almost surely lead to failure. Only the investors, buyer and mangement team negotiated the $88M deal, which practically everyone thinks is a bargin price for ECI. The employees got screwed. You have to wonder why Management/Investors were will to sell at this low of price.

1) I suspect ECI believes they have a "captive audience" with most of development located in Pittsburgh (which is not exactly the hub of technology world). So, unless the Pittsburgh folk are willing to move, then ECI believes they had them "over a barrel" and that they would not leave the company no matter what the terms.

2) Investors and Management tend to believe that engineers will be happy to "just have a job". So, they provide no real incentive for the team to stick around, other than the "job" itself. Fortunately, for solid teams like Laurel's, they can find work very quickly if they look. Though it might not be in Pittsburgh.

3) I suspect some of the new management had contractural pay-offs if the company were sold for any reasonable fraction of what was put in. So, there was a great incentive for them to sell the company, even if it meant screwing the employees.

Time will tell if this is a good deal or not. However, the product is useless without the team that built it. If they leave, ECI might as well have burned the $88M.

Reply | Post Message | MESSAGES LIST | START A BOARD

startup_shutup 12/5/2012 | 3:14:02 AM

re: Looking at M&A Aftermath I feel pity for people who work for startups for five years and then complain on bad deals....I mean take responsibility for destroying your private life and family's life. Say to yourself I would never remain in startups more than one year (by one year you get to know your raise, bonus, title improvement etc...)

Reply | Post Message | MESSAGES LIST | START A BOARD

alchemy 12/5/2012 | 3:14:02 AM

re: Looking at M&A Aftermath Stevery writes:
It depends on the timing. If the investment was at the height of the bubble, then notice that a $100M investment in the benchmark nasdaq would be worth about $40M as of today. The team managed to preserve 75% of the value as opposed to 40%. A common take should be minimally about 33% of the difference, or about $12M.

The more traditional way of doing this is to drop the liquidation preference terms for the VC preferred stock. An awful lot of VCs have terms that give them rights to 2x or 3x return before the common gets a dime. Most startups are 80% VC preferred, 20% common. The preferred flips to common and everybody is taken care of. A savvy acquiring company will do that as a matter of course to prevent a mass exodus of talent. The Ciena/Wavesmith deal is a recent example of this. This tends to have the side effect of rewarding the guilty management team that failed to deliver the goods but it keeps the talent from being so pissed off that they walk.

Reply | Post Message | MESSAGES LIST | START A BOARD

Page 1 / 37 > >>