Profiting from corporate acquisitions as a key employee

  • Guest, it's time once again for the hotly contested and exciting FoH Asshat Tournament!



    Go here and fill out your bracket!
    Who's been the biggest Asshat in the last year? Once again, only you can decide!

Captain Suave

Caesar si viveret, ad remum dareris.
4,678
7,922
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
 
Last edited:
  • 1Like
Reactions: 1 user

Kithani

Blackwing Lair Raider
1,032
1,266
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

Caesar si viveret, ad remum dareris.
4,678
7,922
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

Blackwing Lair Raider
1,032
1,266
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.
 
  • 1Like
Reactions: 1 user

Captain Suave

Caesar si viveret, ad remum dareris.
4,678
7,922
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.
 
  • 1Mother of God
Reactions: 1 user

Tmac

Adventurer
<Gold Donor>
9,206
15,645
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

Veteran of a thousand threadban wars
<Aristocrat╭ರ_•́>
41,351
107,244
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

Eeyore Enthusiast
<Gold Donor>
30,274
22,008
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

Eeyore Enthusiast
<Gold Donor>
30,274
22,008
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

Caesar si viveret, ad remum dareris.
4,678
7,922
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.
 

Captain Suave

Caesar si viveret, ad remum dareris.
4,678
7,922
A follow-up here in case anyone cares:

Never believe anything private equity tells you. Apparently the PE owners of my wife's firm had been bullshitting everyone, buyer and employees, and stripping the company of cash prior to the sale. They walked giving themselves bonuses and snuck out the back door a hair's breadth before bankruptcy. The ex-CFO lied to employees repeatedly and flagrantly about the state of the company and likely outcomes of the sale and borderline lied to the buyers, too. (Do your own independent due diligence, kids!)

tldr; Everyone's equity got wiped out to zero and 50% of the company was laid off in the transition. Fuck those guys (JMI Equity). Sunny side is new owners appear to be stand-up people and have done right by my wife and her team. C'est la vie.
 
Last edited:
  • 4Like
  • 2Rustled
  • 1Mother of God
Reactions: 6 users

Sanrith Descartes

Veteran of a thousand threadban wars
<Aristocrat╭ರ_•́>
41,351
107,244
Never believe anything private equity tells you.

Season 5 Nbc GIF by The Office


We almost did a deal with PE. The longer negotiations went on the more we realized they were total scum. We ended up getting a creative finance offer from a real bank and went that route.
 

agripa

Molten Core Raider
585
495
Season 5 Nbc GIF by The Office


We almost did a deal with PE. The longer negotiations went on the more we realized they were total scum. We ended up getting a creative finance offer from a real bank and went that route.
The PE firm that owns the company I work at does chargebacks to us when they come to visit every quarter. We foot the bill for all their airfare, hotels and food. It is always a fight when they try to bring extra people to those meetings.
 
  • 1Like
Reactions: 1 user

Kithani

Blackwing Lair Raider
1,032
1,266
Sorry this shit happened, PE has been slowly fucking up my field for the past 10-15 years as well.
 

Haus

<Silver Donator>
10,941
41,331
Ah yes....

I still remember. The favorite place I have ever worked was destroyed because the guy who owned the company and was a great guy and good leader, was unfortunately also just a little too full of himself and thought he could outplay a PE firm at their own game. But as the says going, when you dance with the devil the devil doesn't change. he changes you.

Around 4 years after PE got involved with the company, and when the PE firm had brought in a person they wanted as COO, the CEO was forced out. Sat in Vegas at a trade show with him and heard about how much it tore him up seeing what he was building for the people in the company get trashed so a select few could try to cash out big equity tied to the PE selling the company. They're still trying to sell the company, I have long since left. Said CEO is now CEO of a different competing company and seems to have learned his lesson. If I ever get tired of the stupid money I make in my current position and want to go back to working with a ton of people I love I'm planning on heading over there.
 

Abigailicious

Lord Nagafen Raider
193
452
Take as much cash out as you can, run away, and find another job, these pirates will run the enterprise to the ground as they loot it.