Profiting from corporate acquisitions as a key employee

Captain Suave

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Hey bros.

So my wife finds herself in a position of leverage. Her employer, a mid-sized health care AI firm, is being acquired in the very near term future. She is head of the 10-person data science department and has been there essentially since founding 10 years ago. She is the #1 key employee in the organization, to the point where if she is not retained the acquisition does not move forward. She's been instructed to produce a list of retention demands and told that basically everything is on the table. At present, we own a few tenths of a percent of the company in outright stock and have vested options worth another few tenths but are unlikely to be in the money for this transaction. (The company has been hurting during the pandemic and their current private equity owners just want their investment back.)

Has anyone been through a similar situation, on either end? Any advice on how to structure the demands? Pitfalls to avoid? Our first instinct is to ask for a doubling of her salary with a guaranteed three-year payout even if she is released in the interim, plus the conversion of her options into outright stock. This represents total compensation increase of roughly enough to send our kids to top-tier colleges and pay off a mortgage in LA. Too much, too little, or about right? Wrong structure?

Thoughts appreciated.

#firstworldproblems
 
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Kithani

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Just to clarify here, the firm is not being bought out because it is successful but instead it is being dumped because it is not successful?
 

Captain Suave

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Just to clarify here, the firm is not being bought out because it is successful but instead it is being dumped because it is not successful?
Kinda yes. They're cash flow positive but not growing fast enough for the liking of the current PE owners. The pandemic has been tough because a lot of hospitals (firm's clients) are having cash problems due to high ER costs and lack of elective surgeries, so their budget for new services has been nearly shut off. That's changing now, though.
 

Kithani

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Kinda yes. They're cash flow positive but not growing fast enough for the liking of the current PE owners. The pandemic has been tough because a lot of hospitals (firm's clients) are having cash problems due to high ER costs and lack of elective surgeries, so their budget for new services has been nearly shut off. That's changing now, though.
I don’t have experience in healthcare AI but I am in healthcare and the phrases “healthcare AI” and “private equity” both individually set off my BS alarms just to be honest. Most of the private equity groups on the provider side have not exactly been great stock investments and recent legislation has potential to hurt them in the future.

I will say when it comes to private equity in healthcare you are probably a lot more expendable than you think but only you/your wife could know that, and that’s ultimately the most important part of knowing what to ask for imo. Depending on the money involved (are we talking mortgage in Los Angeles or Louisiana lol) you might even contact a contract attorney for their opinion on what would be reasonable to ask for.
 
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Captain Suave

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I don’t have experience in healthcare AI but I am in healthcare and the phrases “healthcare AI” and “private equity” both individually set off my BS alarms just to be honest. Most of the private equity groups on the provider side have not exactly been great stock investments and recent legislation has potential to hurt them in the future.

I will say when it comes to private equity in healthcare you are probably a lot more expendable than you think but only you/your wife could know that, and that’s ultimately the most important part of knowing what to ask for imo. Depending on the money involved (are we talking mortgage in Los Angeles or Louisiana lol) you might even contact a contract attorney for their opinion on what would be reasonable to ask for.
Fair take.

It's probably a ~$100M deal in total. A third party audit firm came and did risk assessment for them and identified her as a single point of failure for the company, as she has designed and built the current product suite, is the only one who really knows how it works, and will need to be the one developing new products. Obviously any sufficiently expert person could take over in the long run, but there would be a very significant learning curve and substantial mid-term disruption while they figure out how everything works.

We're not interested in long-term ownership stakes; that's a problem for the acquirers.

Appreciate the advice.
 
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Tmac

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Fair take.

It's probably a ~$100M deal in total. A third party audit firm came and did risk assessment for them and identified her as a single point of failure for the company, as she has designed and built the current product suite, is the only one who really knows how it works, and will need to be the one developing new products. Obviously any sufficiently expert person could take over in the long run, but there would be a very significant learning curve and substantial mid-term disruption while they figure out how everything works.

We're not interested in long-term ownership stakes; that's a problem for the acquirers.

Appreciate the advice.

I'd probably take them at their word and put a list together of what she would want to stay on long term.

If she's critical to a $100M deal, then she can have her cake and eat it too. Seems pretty simple to me.
 

Sanrith Descartes

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Hey bros.

So my wife finds herself in a position of leverage. Her employer, a mid-sized health care AI firm, is being acquired in the very near term future. She is head of the 10-person data science department and has been there essentially since founding 10 years ago. She is the #1 key employee in the organization, to the point where if she is not retained the acquisition does not move forward. She's been instructed to produce a list of retention demands and told that basically everything is on the table. At present, we own a few tenths of a percent of the company in outright stock and have vested options worth another few tenths but are unlikely to be in the money for this transaction. (The company has been hurting during the pandemic and their current private equity owners just want their investment back.)

Has anyone been through a similar situation, on either end? Any advice on how to structure the demands? Pitfalls to avoid? Our first instinct is to ask for a doubling of her salary with a guaranteed three-year payout even if she is released in the interim, plus the conversion of her options into outright stock. This represents total compensation increase of roughly enough to send our kids to top-tier colleges and pay off a mortgage in LA. Too much, too little, or about right? Wrong structure?

Thoughts appreciated.

#firstworldproblems
Speaking in generics because I don't know that particular field. But we completed two acquisitions last year and one so far this year.
My advice.
1. Re: pay increase - Its ok to be a pig, but don't be a hog. She might see herself as "crucial and irreplaceable" and in actuality might be, but the new owners havent actually worked with her. No one is irreplaceable at a certain point. Every one becomes replaceable at a certain price point.
2. Don't just think about cash. Think about quality of work life shit that doesn't directly hit the P&L. Extra vacation/PTO, an assistant/clerk (if applicable) that can be reassigned to her. Car allowance if she doesn't have one (this does hit the P&L directly) or a company car (assuming they have one already this doesn't hit the P&L).
3. A bonus/bigger bonus for year end tied to some easy to make metric (again it hits the P&L). If she has cost share on her insurance ask it to be covered. Clothing allowance (if appropriate).
4. A golden parachute package since it doesnt sound like the company is hitting on all cylinders and a year or two from now who knows what happens. If she is let go not for cause she gets X months salary, insurance covered, etc.

Be creative beyond just "give me X more dollars".
 

Mist

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Hey bros.

So my wife finds herself in a position of leverage. Her employer, a mid-sized health care AI firm, is being acquired in the very near term future. She is head of the 10-person data science department and has been there essentially since founding 10 years ago. She is the #1 key employee in the organization, to the point where if she is not retained the acquisition does not move forward. She's been instructed to produce a list of retention demands and told that basically everything is on the table. At present, we own a few tenths of a percent of the company in outright stock and have vested options worth another few tenths but are unlikely to be in the money for this transaction. (The company has been hurting during the pandemic and their current private equity owners just want their investment back.)

Has anyone been through a similar situation, on either end? Any advice on how to structure the demands? Pitfalls to avoid? Our first instinct is to ask for a doubling of her salary with a guaranteed three-year payout even if she is released in the interim, plus the conversion of her options into outright stock. This represents total compensation increase of roughly enough to send our kids to top-tier colleges and pay off a mortgage in LA. Too much, too little, or about right? Wrong structure?

Thoughts appreciated.

#firstworldproblems
At least a director title (or whatever the equivalent is, principal architect, whatever) and at least a 15% raise, along with a retention bonus if she agrees to stay on for at least 18 months. If she really is a single point of failure for a key product then VP of Data Analytics or Data Engineering or whatever is not out of the question.
 

Mist

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My last company had 22 vice presidents in a ~1200 person firm at one point, due to key acquisitions. That company was also a shitshow so take that for what it's worth.

The best part about a VP title is that it looks great on a resume even if the company is basically defunct in 2 years.
 

Captain Suave

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At least a director title (or whatever the equivalent is, principal architect, whatever) and at least a 15% raise, along with a retention bonus if she agrees to stay on for at least 18 months. If she really is a single point of failure for a key product then VP of Data Analytics or Data Engineering or whatever is not out of the question.
She's already a Chief, though not Officer and thus not fully part of the C-suite. EVP analog, probably.