So Your Company Got Acquired...
You have choices in the process as long as you prepare and pay attention
This week a mid-sized tech company where several friends work was acquired. I’ve been trading texts and phone calls as the impacted employees ask for my take. The purpose of this post is to put this advice down on paper for all the people I cannot directly reach—and for you, dear reader, because the odds are very high that the company you work for will be acquired someday. Start preparing now.
I’ve been through this process twice, in the fairly unique position of being an executive that helped negotiate the acquisitions of my companies. I’ve seen the fear in these teams’ eyes when we stand up in front of our friends and tell them that someone else owns the company now—and things will be changing in ways we cannot predict.
At worst, our work pays the bills. At best, it adds meaning to our lives. Either way, fear of new ownership and the changes they impose on our work+lives is natural—and not necessarily irrational! But we can calm our fears, protect our livelihoods, and make the best decisions by investing a little time in preparation and analysis. This is my guide to getting ahead of the game.
Step 1: Pre-Planning
It’s January 2020, and I’m at a cocktail party with a group of “couples” friends and acquaintances. I’m catching up with people I haven’t seen in a while, and making small talk about everyone’s kids, jobs, and recent holiday trips.
Up walks a guy who looks familiar, but I’ve forgotten his name. I seem to recall he’s the husband of one of my wife’s friends—a guy I have small talk with at events like this every year or so. He says hello, holds out his hand for a shake, and reminds me that his name is David—oh yeah, Gayle’s husband. We trade a few more pleasantries, and he leans in to ask, “Can I get your advice on something?” We pull to the outer orbit of the event for a private moment.
Out of earshot of the group, David explains: “I’ve been at my company for 11 years now, and the longer I’ve been there, the more stock compensation I’ve gotten. I’m wondering whether or not I should keep holding it or sell some. The stock price used to be much higher, and I’m holding onto it and staying at this company in part because the stock might go back up—especially if we get bought by a Google or Facebook. I know you’ve seen a few things in the tech industry—what do you think?”
I give David my usual warning: I’m not a financial advisor, and you should get a real one. Then I ask his company’s name, and it’s one in my industry that I know pretty well. I recall the company went public about ten years ago, and its stock price gradually declined. Its product was an industry leader and innovator but had fallen behind. Word on the street was that it was bound to be acquired at some point due to a lack of growth.
Then I ask, “How much of your savings is in this stock?” David replies, “About 90%.”
It’s hard to keep myself from choking on my beer.
My advice for David is that: (1) a company with a declining stock price rarely gets purchased for a big premium; and (2) you must, must, must diversify your investments. Even if you love the company and believe in its success, you must balance your life savings to limit the downside of losing the result of your hard work and good fortune.
David thanks me for my advice, but I have a gut feeling that he’s not convinced. Months after that cocktail party, COVID hit, and we haven’t gotten the same group back together again. But every few months, I think about my conversation with David and dearly hope he took my advice. His company’s stock failed to benefit from the tech bull market in 2021, and last year it was acquired at a price that wasn’t much higher than its all-time low.
You have my permission to stop reading and start diversifying now.
Run a Reality Check
Once you diversify, it’s time to take a step back and form an unbiased assessment of your current company’s prospects for a good acquisition. The easiest way to do this is to look at its growth.
Growth is everything. They say a shark will die if it stops swimming. Something about needing water to keep flowing through their gills. Well, business today is full of sharks—and growth is the key to survival. Without it, your company is going to be dead in the water.
If you’re growing, you’re going places. Stock prices are mainly based on estimates of revenue and profit growth. Aside from the stock, growth means more hiring, promotions, new products, and new clients. Growth also covers a lot of mistakes and flaws. There’s less tedious budget-minding and bureaucracy. Of course, growth brings new challenges—but that’s where you personally get to grow and improve your own valuation the most.
If you’re not growing, the company’s value will decrease. You’ll experience more and more reorgs. Top people will leave. Fewer good companies will be interested in buying the business.
When your company isn’t growing, the personal stuff isn’t great, either. You’ll have fewer new career opportunities, and your resume will look worse when you do need to seek a job. Recruiters and hiring managers tend to favor players on winning teams.
There can be opportunities for personal growth and big raises at declining companies but just know the downsides. At a minimum, keep your resume updated, keep in contact with peers at other companies, and set aside at least six months of cash to cover the bills in case you’re the victim of the sixth re-org or your company is bought for parts.
Step 2: Analyzing the Deal
It’s 8:05 am on June 1, 2018. This will be one of the most exciting work days of my life. In an hour, we will publicly announce the sale of our startup for what would ultimately be $50 million. It’s been months of negotiation and many years of ups and downs and ups to get to this day.
And I’m standing in front of our office holding a sign that says: “Free Valet Parking.”
Let me explain…
As part of our acquisition deal, we need our employees to be excited about it. There are two huge reasons. First, our deal has a 19-month earnout period, and $30 million of that $50 million price is based on our revenue growth. We’re going to need our employees to stay to hit that goal. Second and most pressing, our acquisition contract stipulates that we need 95% of our current employees to sign on with the new company within the next 48 hours.
We had already announced the acquisition at a company all-hands two days earlier, and people were somewhat nervous but mostly excited. We’re confident everyone will sign on, but we don’t want to take anything for granted. So we decide to have an all-day party at the office. We call it Signing Day, and we’re ready to show a lot of love and “make sure people have time to sign their new employment contracts.”
Our C-level team comes up with a bunch of crazy ideas. We park people’s cars for them, we make cocktails all morning, and we set up a bunch of fancy toiletries in the bathroom.
Throughout the day, we take time to share more about what’s to come, we answer questions that people have been mentally chewing on for the past few days, and we welcome a couple of visitors from the acquiring company’s leadership team.
We hit our signature goal by noon, and the office devolves into a party. The people from the dentist's office upstairs come down to see what all the noise is about.
Watch What Happens Live
Some day you’ll likely have an acquisition experience, and it will be your turn to listen, learn and decide what to do.
You’ll be sitting at your desk, getting through your daily to-dos, when suddenly an urgent message comes through the ether…It’s a press release announcing your company has been acquired. There will be an all-hands meeting. You’ll learn a few things but have many more unanswered questions. Now you’re in it. And it’s time to watch closely.
You are the one doing the due diligence now. And the first thing to look for is the strategic fit between your company and the one that just bought it.
The key strategic questions are related to the risk of getting laid off in the days, weeks, or months ahead as the integration proceeds. Some key elements to weigh:
Is your company growing? Per the above, if so, the buyer won’t want to mess up a good thing. If not, you’ll likely see a lot of cost-cutting.
Is there an overlap in the businesses? If the acquiring company is already doing what your company does, there’s likely trouble ahead.
Are you in an operations role, like HR, Legal, or Finance? This is where the buyer will first look for synergies, as their existing team can do much of the work.
Is there an earnout or other performance-based terms in the deal? If so, your company will likely remain “intact” for this time span.
But beyond the strategic risk in the two companies’ coupling, you must keep your eyes open to the cultural risk as well. In other words, is this a company you want to remain at? Go to your network to look for people who have worked at the acquirer, read Glassdoor reviews, and find other clues to understand what it’s like on the other side. Here are a few things to look for:
Is the buyer a “winner”? Are they growing, hiring, launching new things, winning clients, and pulling in industry awards? Being part of a growing, winning business can be an instant resume upgrade and even offer more career opportunities than your current company can.
Do they seem to want you? What is the acquiring company communicating to their new employees? Are they ready with exciting talking points? Did their leaders fly out to your HQ to meet with the team? Are they offering financial incentives to keep you? The acquirer that prioritizes people will make this a priority.
By researching and analyzing, you’ll be in a much better position to understand what’s going to happen next and whether this is a place you want to continue your career.
Step 3: Choose Your Adventure
You may not have a choice, of course. A lot of M&A is driven by synergies, which means eliminating duplicate roles. Again, this happens most often when business lines overlap, and your company has been on the decline. And the risk is highest when your company is in the private equity world.
If you’re not immediately let go, your first choice will likely be whether or not to sign an employment agreement with your new owner. You’ll usually be given a document with current and/or adjusted title, salary, benefits, and other incentives to stay. It will likely be attached to a non-compete, non-solicit contract with several other company rules and regulations.
You don’t have to sign it.
If you do not sign this document, you will be terminated. However, this can be a window of opportunity.
You might find the new non-compete is too restrictive. You might not like your new title or compensation. You might not like the new sales territory you’ve been given. And your early analysis above might suggest this new company is a stinker.
Reframe the situation to make a better decision: Pretend you just got laid off and got an offer for this new role. Is this the job you want to sign up for, or would you rather look for something better?
Ask what happens if you fail to sign. Chances are you’ll be told that you are no longer an employee and be offered a severance package. This might be an exit ramp to go find the next opportunity.
Or you may choose to re-sign and stick around. Maybe things will be better, and maybe it will get worse, but either way, you will learn something. As long as your new employment agreement hasn’t handcuffed you, the best approach may be to wait, watch and see what happens next.
Just remember that every day you walk into the office or boot up the company laptop, you are making a choice. The worst choice is to simply go along with the flow and have your decisions made for you. Of course, this is a lesson way beyond acquisitions and your career. It’s how to live life best.
Bob Gilbreath is a 2x-exit entrepreneur and co-founder of Hearty, a curated matchmaking service that combines top software developers with early-stage, venture-backed startups.