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Linux Business The Almighty Buck

Merger (or Acquisition) Recommendations? 63

Posted by Cliff from the swallowed-by-a-bigger-fish dept.
pauly asks: "We are a small (5 man) specialized software company which is merging with a larger (200+ employee) company. Basically they are buying us to add a whole new product line and have us be their development skunkworks. What recommendations would Slashdot readers have before, during, or shortly after the acquisition? This post is not a solicitation of legal advice: we have a very nice contract drawn up which is agreeable to both parties and which we will be signing shortly. We are looking for practical precautions or recommendations. If you have gone through the same type of deal, what would you do the same, or differently?"
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Merger (or Acquisition) Recommendations? More

Merger (or Acquisition) Recommendations?

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  • This is silly (Score:5, Funny)

    by fm6 ( 162816 ) on Sunday July 13, 2003 @04:46PM (#6429640) Homepage Journal
    You and your 4 cohorts have managed to create a successful independent software company, and built it to the point where a larger company found it worthwhile to buy you out. Given the business acumen of the typical Slashdotter (Sealand! Regulation is Socialism!) I don't think there's anybody here qualified to give you advice!

  • Be an anthropologist (Score:4, Insightful)

    by Anonymous Coward on Sunday July 13, 2003 @04:49PM (#6429648)
    Study the culture of the acquiring company. Find out what's really important to them and how they expect to do things. Otherwise their immune system may surround, scorch and eat you before expelling you. You're outnumbered 40 to 1. You'll have to adapt.

    Do they really want a skunk works? Will they still want it during the next revenue crunch? If they're actually believers, why didn't they have one already?

    Make sure the salespeople know what they need to about your product line.

    If you've already negotiated the contract it's too late to talk about precautions.

    Scarcely Credible Operation, Software Career Over, Sold Crap Only. Sued Competitors Often, Strangely Claiming Ownership.

    • Re:Be an anthropologist (Score:5, Informative)

      by MarkusQ ( 450076 ) on Sunday July 13, 2003 @06:49PM (#6430251) Journal

      Don't just study them. Join them. Make a point of meeting people in the company, learning about the other products, customers, etc. Be friendly with everyone--the first person you get to know may turn out to be a great ally or they may turn out to be the universally lothed office jerk--so don't "choose sides" until you've been there a while. In short, act like a new hire rather than a member of an organ transplant just waiting for the T-cells to show up.

      -- MarkusQ

  • Well... (Score:4, Insightful)

    by nsebban ( 513339 ) on Sunday July 13, 2003 @04:51PM (#6429655) Homepage
    I would say "start searching for another job" :(
    • At the very least get your resume together.
      nsebban is right, plus it never hurts to have your ducks in a row. Also Mensababe should be noted as also being right, get a contract lawyer to go over the contract.

      As for those who complain about italics for emphisis well her usage is spot on, and I despise MENSA so I have nothing to gain by pointing our she is right.

  • Here is what you have to do. (Score:5, Informative)

    by Mensa Babe ( 675349 ) on Sunday July 13, 2003 @05:19PM (#6429760) Homepage Journal
    First of all double-check the contract with your lawyers. And I don't mean just reading the preamble. Concentrate especially on the parts and the exact phrasing about copyright holders. You need a good copyright law and contract lawyer. A good one may not be cheap but trust me, this is the most important single point of failure, so it pays off to hire an expert. Second of all make sure no one of your current people can be fired no matter what. From my experience this is the most common mistake made by small companies being bought by larger ones. They sign a great contract, everyone is great, until people start getting fired and being replaced by workers of the buying company. Be careful. Be very careful. Remember that they are bigger and you must take care about your own best interest. I wish you good luck. I really hope you will not end up like most of the small companies I have done business with.

    • Re:Here is what you have to do. (Score:5, Insightful)

      by NexusTw1n ( 580394 ) on Sunday July 13, 2003 @06:00PM (#6430004) Journal
      I've been outsourced twice, neither was a great experience, although the first experience, where I was "sold" to IBM at least offered better pay cheques.

      The only thing I would do differently is not believe the "nice and agreeable" contract. There will be a loophole your, or their lawyers missed, it will cause problems and bitterness. Accept it will happen and plan accordingly.

      Generally speaking I wouldn't recommend mergers, if you have a good product sell it to the company on an exclusive for x years contract. Don't sell the talent, it rarely works out smoothly or for the best.

      The second time the company I worked for was sold, I learnt some crucial advice for the CEO. Don't say you're going to be there and support the team you built from scratch throughout the whole transition period, and then 4 days later quit, take the massive cash offer and disappear to a golf course for the rest of your life.
      The people you leave behind tend to get paranoid and start looking for new jobs before you hire your first caddy...
    • Living proof that you can be a mensa member and still be a fucking moron. Read her journal... Yikes.
      • So true.

        I mean how does someone with supposedly "superiour" intellect make a spelling error in their own sig?

  • prepare (Score:5, Insightful)

    by Naikrovek ( 667 ) <jjohnson@ps g . com> on Sunday July 13, 2003 @05:21PM (#6429776)
    when i worked for a company that was bought by a larger company, i thought everything was daisies. yay, we were promised more money, large lumps of vacation time, and other assorted goodies, but the day after we were bought, we were laid off. no warning, no apologies, no severance, nothing.

    if you're willing to sell your loyalty to someone with the money, make sure you get to keep your job afterwards. that's my advice.

    • Re:prepare (Score:3, Insightful)

      by NetJunkie ( 56134 )
      Next time get it in writing. Promises don't mean a damn thing.
    • the day after we were bought, we were laid off
      I can confirm this. I'm working at a global Fortune-500 company and they buy local firms, and then they move all development to India. The "social plan" is: move to India or bye-bye.

  • Why be aquired? (Score:5, Insightful)

    by DarkVein ( 5418 ) on Sunday July 13, 2003 @05:22PM (#6429784) Journal

    Hear me out. Why do you want to be aquired? Here's what I see: You've developed a small and successful software company, and a larger company wants controlling interest in your company to improve its profits. You can give them that interest without sacrificing your independence, or your profit.

    If you're aquired, you become employees of the larger company and will not share in the financial gain the larger company will aquire. Obviously, they see a potential for profit which outweighs cost of aquiring your company and yourselves. Most likely, by aquiring you they'll get something you would NOT give them if you gave them interest in the company and a royalty contract. Exclusive rights to your software and related expertise, most likely.

    You can give them stock in your company without giving them your whole company. You can give them voting or non-voting stock, if you want. You can grant exclusive licenses to projects. So, my question is, why do you want to be aquired? Do you want a check with lots of zeros up front? Would you rather administration be handled by division manager instead of someone you have to hire and pay a salary? What are you gaining by merging? You really have to know what you want to gain to know how you should prepare.

    My recommendation is to consult (read: pay) a corporate lawyer and corporate accountant (or two) over dinner. If it's administration and book keeping you're after, you can hire administration staff: as stockholders, you're in charge, they do the paperwork, give advice, and ask for direction. If it's a merger you're after, paid counsel is usually the best advice you can get, and they'll teach you how to maximize your returns and maintain control.

    • Re:Why be aquired? (Score:2, Informative)

      by Anonymous Coward
      The magic word is synergy. Being aquired can make sense for the smaller company, too. For example, they could increase customer acceptance by acting under the umbrella of a well known company. As far as I can tell, they already know that they will be aquired, that it makes sense from a business point of view and that the "merger" is acceptable to both parties contract-wise. He's looking for advice concerning clash of corporate culture, things to look out for when responsibilies change, etc. The quintet is g
      • The above AC has it right on the money. First, acquiring company is giving us access to a large base of installed clients interested in our application. Furthermore, to answer the parent, we (the quints) do receive a cut of the revenue we bring in from new installations of our software,as such we are not sacrificing all of our sales (and profit) to the mother company. Lastly, the scenario of being fired on day one is trumped since we all have employment contracts of various minimum durations.

        • we (the quints) do receive a cut of the revenue we bring in from new installations of our software

          Don't count on this unless there are specified minimums. I've seen a case that sounds exactly like what you are describing, where after a week or so of happy-happy, the new hires started getting assigned to help another team that was developing a replacement product, were told to add a data export feature to their product, etc. They wound up doing 90% of the work to migrate their old customers to the new o

      • This is going off an an angle from the poster's question, but I think it's interesting.

        For example, they could increase customer acceptance by acting under the umbrella of a well known company.

        They could act under the umbrella of a well known company without losing their company, also. It's a product (plus development) the prospective parent wants, it seems. The product doesn't have to mean the entire company. (On the other hand, with OSS development quickly becoming the only way to develop large/com

  • Sorry (Score:5, Funny)

    by ColaMan ( 37550 ) on Sunday July 13, 2003 @06:31PM (#6430179) Journal
    This post is not a solicitation of legal advice

    Then I'm sorry but we at Slashdot, being all professional lawyers, are therefore unable to help you. As we pride ourselves on our ability to carefully consider and dispense legal advice, surely you can see that by straying outside our field of expertise we would be doing you a disservice.

    If you were asking for legal advice, then I'm sure you would have received 100 replies to your story by now.

    Might I direct you to other places worthy or your questions, like kuro5hin [kuro5hin.org]?
  • Get as much money as you can up front. Cash, not stock, because you have no idea if the company buying you out will be in business next year. Also, if at all possible, negotiate for royalties on the IP you're giving up in the event they decide to lay you and your friends off next week.

  • Only one in 5 work out (Score:3, Interesting)

    by bluGill ( 862 ) on Sunday July 13, 2003 @07:45PM (#6430521)

    I think that was the number we were given when our smallish (1200 people) company was bought out by a big (~7000 people) company. They said they were commitied to making it work, and for the first year it looked that way. Then things went downhill. Slowly management got worse as people left or got transfered. Eventially good talent was brought in, but by then it was too late, the new CEO 6 years latter didn't care about us, and 7 years latter only about 10 people have a job from the old company (some hired after the marger)

    To be fair, the new CEO made the right decision, the merger failed, and could not be rescued. The problem was the salespeople had no interest in selling our products, so we had plenty of great products that nobody was buying. The merger failed because one of the benifits (the big company's salespeople had better contacts in industry, and there were mote of them) didn't work out.

    In other words, even if everything seems brought now, keep yoru resume up to date, the things that make a merger fail are the same as any engeriing product: management or sales. I've seen many cases of a baddly engineered product doing well, while the compitition that is better built fails in the market.

  • Working for a Big Company is different. (Score:2, Interesting)

    by Anonymous Coward
    I worked for a company that was acquired by IBM.
    Before the buy-out, I worked, not in an office, because there was no door, but it was in a dead-end, quite cul-de-sac of a quirky office suite.

    Post-IBM, we got moved to a building roughly approximating an airplane hangar, scores of people in cubes, no privacy, no way to concentrate.

    Everytime a salesman made a particular type of sale (I guess it was a high-end sale) they would ding a bell over a loudspeaker, and everyone would pop up like prarie gophers, tryi
  • It might work out. Really. Two hundred is still a small company.

    But, if it doesn't make sure you have a big, fat golden parachute waiting to make the landing softer.
  • Be sure you know exactly why they are buying you out. Does it really make sense? By that I mean do the acquirers know what they're doing?
    When the (under 10 employees) company I was working for was acquired, the owner's response was a succinct "These guys are idiots. If I could raise that kind of money I'd start my own company." He realized he was being offered a good deal and took the money and ran. The rest of us didn't make out quite so well! He was right: they had no knowledge of the business, ignored th

  • Steal (Score:2, Funny)

    by Gothmolly ( 148874 )
    They have no idea of what your actual physical assets are. Oh, the might have a general idea - X workstations, Y servers, a switch, some monitors. This is the perfect opportunity for moving some things home, like:
    desktop KVMs
    4 and 8 port switches
    your 'company purchased' cable modem
    the portable CDRW drive

    etc.

    Line your pockets, let the Man buy stuff once you've been acquired!
  • We are a small (5 man) specialized software company which is merging with a larger (200+ employee) company. Basically they are buying us to add a whole new product line and have us be their development skunkworks.

    It sound like Pyra Labs/Blogger people have got to Google and are now getting bullied in the corridors! Do not ask us for advice, wimps!

  • sucks (Score:1, Interesting)

    by Anonymous Coward
    I worked for a small internet startup, around 40 employees or so. We were purchased by a large media corporation, which seemed cool at the time, we all got nice stock options, several people were made millionaires, and they said nothing would change because their main office was in another part of the country and they would basically leave us alone.

    Shortly after, we had an HR department run by Nazis. Managers were hired that fit more into the "corporate" world. The fun plug was pulled on just about ever
  • When my company merged with another of a similar size, everyone was excited and motivated. In my contract I was able to sell half my shares on day one.

    Spirits were high, so were expectations for the future. We hired an expensive CEO. We hired an expensive marketing guy. We hired an expensive sales weasel.

    Then the infighting started. Initially between the Swiss and Australian office. Then between the founders and the CEO. Then pretty much between the entire board of directors, founders, CEO and all

    • Practical reccomdendations?

      The first six months will be spent teaching your technology to 'new hires' ostensibly there to 'learn how to integrate your stuff with their stuff' or 'allow for bigger scope.'

      Then, anybody from the smaller company with anything approaching 'authority' or 'ownership' will 'coincidentally' leave the company 'to persue new options.'

      Then, you'll be shuffled to either a) tech support, b) a new product line, or c) ousted completely.

  • I've been in a couple of merger situations. Though none quite so lopsided.

    Be prepared to accept changes in how you work, what you work on, and that you won't be an independent group any more. Some of these changes will be positive, others will be decidedly less so. Only fight the changes that really matter since fighting them all will be futile and frustrating. And, keep in mind that one of the changes may be that you are out on your own again (voluntarily or otherwise).

    But, in any case, having the ri

  • Skunkworks? (Score:2, Insightful)

    by FireAtWill ( 559444 )
    The skunkworks promise bothers me. It may sound cool to do research, but you're effectively taken out of day-to-day operations where you can be cut loose without any short term effects other than the cost savings.
  • Same thing happened to me and my company a couple years ago (yes, after the dot bomb). We had a promising product (actually a service), but didn't have the funding. We had been a successful small local ISP for 5 years but had done a lot of contract programming too. We knew we had something good going, but couldn't find private financing (2001), so we started talking to a couple complementary companies who were big enough to fund this. We leveraged ourselves quite a bit to get a proof of concept up and runni
  • We aren't going to change anything about how you operate. We bought you because you are successful and we don't want to interfere with that in any way.

    That, plus $2 will get you a nice cup of coffee.

    Don't get me wrong, they are truly sincere, just sincerely lying.

    On the practical side, don't piss off anyone until you figure out who controls your future in the new business model.

    I've been on both sides of this equation, and I can tell you that the other side is a lot more fun. If you play nicely, howeve


  • Resistance is futile.
    You will be assimilated.
  • 200 people is still small enough to retain creativity. Everyone will know everyone and the big-company problems won't have set in.
  • 1) Pre-Nup. Get prearranged severance packages with 6-12 months of salary. That will make them think twice about letting you go.
    2) You retain hire/fire power to grow YOUR team.
    3) Get a budget that you control.
    4) Start looking for another job anyway, because you blew it...

    --ee
  • One of the companies I worked for was acquired by Cisco back in 1998 ( as I recall ) and once with Cisco I was involved with and worked on no less that 5 acquisitions. So I have had my hands in this pretty deep from both sided of the fence.

    My advice is that once you are acquired, become a part of that new company. It will make your lives much easier. No one wants to hear "well, when we were so-and-so, we did it this way" over and over again. They may be interested in that if you have something really a
  • Others have posted practical advice about budgets, hiring, etc.

    All the advice I can offer is to spend some time studying the "culture" of your new company & try to fit yourself into it (or create a niche for your style). If that means things as trivial as dress standards & water cooler slang, do it.

    Of course, if conforming means outright prostitution of your principles, I'd say "freshen up the resumé." Either way, make sure you are adequately protected by your contract.

    It doesn't sound li

  • I went through the same thing about 6 years ago, and though this sounds a bit odd my biggest regret was going into the merger with "too open" of a mind.

    In my case, the purchasing company was bigger and (seemingly) more advanced than we were, and accordingly my initial approach was to bend over backwards to accomodate their requests, integrate with their technology, stay humble, allow that other folks may have solved the usual problems differently/better, give the benefit of the doubt, etc.

    What I didn't ap

  • I've been through a couple of mergers, and I think the best advice would be "update your resume". Things can get ugly quickly and you want to be prepared.
  • ...find out who brings the donuts.

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