Advice for Surviving a Buyout?

Anonymous for Good Reason asks: "I'm working for a small-medium sized software company that looks like it's going to be bought by a much larger company. We (employees) aren't being told anything yet, but the behavior of our management and some of the information we have been asked to provide all make it pretty clear that somebody is going through due diligence and trying to close the deal. How have other people fared during these kinds of buy-outs? What did you do to make sure you kept your job and weren't RIF'd after the dust settled? How did your stock options, pay, benefits, etc transfer, and was there anything you would have done different to protect yourself? Was the cultural change a problem, or were you welcomed warmly into the fold? I'm mostly interested in stories from people whose companies were bought by the really big players (IBM, MS, Sun, CA, HPaq, etc.) since that's what this will probably be. Since I have never been through a merger of this type, I'm not sure what to expect and with the current economy I would like to increase my chances of staying employed. Any insight the Slashdot crowd has would be interesting."

Comments

It depends on the Company

[Anonymous Coward]

The HP-Compaq-Digital buyout wasn't too traumatic for most of the folks who worked at DEC, but that was a biger company buying a big company. Interaction with "new" management was shielded from many of the people who used to work for DEC.

The part of DEC that got bought by CA was destroyed. Most of the folks didn't make it past the end of the first year, and you could count on one hand the number of people who made it past 2 years. (Out of about 150.) Many speculated that they bought the division of DEC that they did to eliminate competition.

CA's "Culture" was very, very different than it was at DEC, and many people considered it to be employee hostile. The attrition rate was aboout 2% per week.

I lived thru the network business at DEC getting bought by Cabletron. That was another culture clash as well, but not as strident as the CA one.
In this case, many felt that it was a company that bought a good sized business and didn't really know how to get the value out of their new products and employees. It, too, shrunk from something like 1400 people when the deal was announced to 800 by the time the deal was closed, to about 100 by two years latter. Then, that business, with no (new) products, and most of the knowledge of the current products gone out the door, was spun off to another tiny company, which
still exists today, but much smaller, since they layed off most of the remaining engineers.

Bottom line, it depends on who is buying your company and why, as well as the attitudes of the new buyer. If they can deal with absorbing your company, and have an interest in continuing the products, then there is reasonable hope.

Buyout experience.

[BitGeek]

First, getting bought out is a lot better than getting laid off-- I've ridden a couple companies all the way down, and let me tell you its no fun.

My experience with having our 40 person company bought by a 40,000 person company:

1- Stock options. They paid off well. And the company handled all the unvested options by sending a separate check covering the value of those options (We were bought for cash).
2- When you get bought for stock (which is more likely) suddenly, you're an investor in this other company. You need to go out and do good research on this company to decide whether this company is a good investment. whether your share of the company getting bought is worth $1,000 or $100,000 -- you now have invested that amount in the new companies stock. If this is a bad investment, you need to start moving your money out! (And if this is a big percentage of your net worth, diversifying may be a good idea.)

If you've spent a couple years investing and know how to do this analysis (and your "Analysis involves actually reading their financial reports, and determining the right price, not just momentum) then you already know what to do. If not, the only short cut is to go to quicken.com and get their one-click scorecard for the company buying you. Use the NAIC Rules or the Buffett method. If the company is not a "buy" under these criteria, and the reason is more than one thing (or the reasons are fundamental ones- and the company hasn't been a buy for awhile) then you probably should consider selling. I'm not giving you advice- I don't know squat about the company thats buying you-- but you are essentially selling your stock in the old company and buying stock in the new company at the price of the deal! IF that price is not a good one, then its a bad investment! Even if it seems like "free money".

3- You're probably going to get better benefits. big companies tend to have these worked out, with lots of little benefits, etc. The biggest benefit you risk loosing is vacation time, as bigger companies tend to be less smart about this than small companies. Ask for adjustment to your salary to cover the weeks you lose if you lose any.

4- Bigger companies do weird things. They will likely put lots of silly contracts in front of you. In my experience, they asked us to sign something that was illegal or unenforceable in our state. I balked and the HR drone didn't know what to do-- but the HR rep was cool about it, and impressed when I showed him the law in question. Generally, I've found you don't have to sign all the silly paperwork. FRankly, in reality, all the paperwork you already signed you're still bound by, and they still have an IP contract and all that, since they bought the company and your responsibility transferred with ownership-- so if they ask you to sign new noncompetes, and stuff like that, take that for the negotiation opening it is and make sure you don't get screwed.

4- Layoffs. I was laid off about a year after the company bought us. They laid half our staff off cause they realized they probably shouldn't have bought us. The severance package was good, and that was a pleasant surprise. When a startup goes under the severance is usually two weeks, this was much better. How to avoid being let go? Be a good employee. Usually they don't reorg the whole thing... but many people start bucking for positions inside the larger company. If you smell layoffs, get on the larger companies intranet and find other position there to apply for. You have an advantage by already being an employee.

5- You have warning, if you haven't already saved 6 months of living expenses, start putting away %25 of your gross income now. IT almost always takes a couple months for them to start axing people-- if that's what they're going to do-- and so the next six months will allow you to save a couple months salary.

You're right to be wary-- be conservative with money, seriously look into the new companies stock to see if its a good investment, and keep your bosses happy-- they'll probably be your new bosses and if layoffs come, they'll have to decide who gets to go.

Good luck!

Expect the unexpected...

[Ocelot Wreak]

... and always keep your parachute packed, as you never know when you're going to need to use it.

Good luck! Regards,
-too frequent chute user.

My experience

[drightler]

I worked for a small privately owned ISP which was bought out by a larger local ISP. There wasn't any transfering of shares to worry about, but we received stock options at the new company and our pay remained the same. After 60 days we all had to option of staying or going and most of us stayed. A year later a nation-wide telecommunications startup bought us and again, pay remained the same although we got screwed on stock options. This telecommunications company let us sit and waste away while they were trying to figure out why they bought an ISP concidering they had no clue how to run one and 8 months later the layoffs started. The layoffs never stopped. They continued until the day that the doors on our office were closed and the telecommunications company pulled out of the state completely. I got out before I was laid off as did my girlfriend, but I had friends who are _still_ unemployed and that layoff was almost 2 years ago.

I sincerely hope your experence is better.

Happening as we speak...

[Anonymous Coward]

You're not going to like my story, I'm afraid.

I've been working for a large financial company for the past 5 years. We were just bought out by the biggest bank in Europe. I was chief geek for our company's web apps & architecture team. What happened is that at first, there was a merger where people scrambled and said "Ok, who can merge X and Y fastest?" You'd think that in that situation the bigger, newer player would always choose their own technology, but that didnt' happen. On the contrary, I thought that we dazzled them with exactly how prepared we were for such things. For the merger, several of the bigger company's sites were killed, and we got to create a couple of new ones. In short, we thought we were doing pretty good -- we offered a platform that the new company just didn't have. I was one of the chief cheerleaders trying to shoot down hallway rumors by pointing out how much we offered that the new company just didn't have.

Then the geography rumors hit. The new company is based in New York, we're not. So regularly we would hear that they're closing us. yet, all the officers would tell us "There's no mandate to close this office." On the contrary, the new company even had some 9/11 issues to deal with, and we were under the opinion that they *liked* the idea of not being centralized in New York like they used to be.

Then the IT pruning began, and this is what killed us. It seemed like every quarter we'd be given another percentage number to hit. Layoff 20%. Now another 30%. You agonize over what 3 people to get rid of in the first round, then have to find another 4 people 2 months later. Sucks. You start saying "We can't *do* anything now that we're this small", and you start to realize the end is near. You realize that you're getting hit far greater than New York, and despite the fact that there "is no mandate", the simple truth is that all the bigtime execs are in New York and like to keep their people close.

Right around now you realize that the world is not what it was 3 years ago, and that sucks. Engineers get pissed and say "Screw it, I'm looking for a new job." Management counters with, "Have a nice time. You're not going anywhere." Chaos ensues when people who anticipated a layoff actually *do* find jobs and quit, thus royally messing up the headcount. We had this happen - had to get rid of some people, told them, and then another guy said "Well, I quit" so we had to un-layoff somebody.

About 2 months ago the final word came as the new owners swooped in, said "All developers on this team except for you two guys, you're gone. You two are transitional until next quarter. Operations crew can stay and keep the sites running." And that, as they say, is that.

First reaction of all the people around me was, "Oh, come on, you've done really good work for them for 5 years, surely if they're getting rid of your department, they can find a place for you somewhere else." Rebuttal: "Anybody at the original company who might have been able to do that is already gone. I'm lucky to have survived as long as I did. The new company never saw us as anything but a number on a budget. Nothing we could possibly have done would have changed that."

Sucks, but that's the story of what happened to us. The painful part was watching it happen with our hands tied and wondering if we could have changed it. I don't think we could have, which is what keeps me from getting too depressed. I can still tell myself that we did some good work, and not beat myself up over mistakes we might have made that cost us our jobs.

Good luck to you.

Re:Happening as we speak...

[sql*kitten]

Employees should be loyal as long as the company is loyal... but if they have layoffs one quarter and then layoffs again the next quarter, its clear they don't know what they are doing.

One company I worked for had layoffs in December one year. The following February, the CEO said in a webcast to the whole company that if business didn't pick up there would be more layoffs the following May. Maybe he intended it to scare everyone into working harder, but the result was productivity went through the floor as most employees did one or both of a) sending out resumes, networking and interviewing full time or b) scheming to get laid off and collect a severance package. Everyone helped themselves to office supplies and used the printers, fax machines and phones for job hunting. Many employees openly referred to the office as "job club" (in the UK that is the term for a government-run employment agency) and getting laid off as "hitting the jackpot".

That round, the second, really broke the back of the company since by happenstance or their own design, most of the "heavy lifters" were gone. Not just the tech elite, but the MBAs too. Next September there was a third, not long after that a fourth, then I stopped bothering to keep track.

Lessons learnt:

• There is never only one round. If management tell you there will be only one, they are deluded or lying. Both reasons are just as bad for the employees.
  
• The second round is the best time to be let go - you don't have the stigma of first-round deadwood, and the company probably still has the cash to gice a decent package (the folks after round 4 I believe got statutory minimum).
  
• If you think it's coming, sit tight, no point in resigning if they want to pay you to leave.
• Getting laid off is not the black mark on your resume that it once was.
  
• Get a reference from HR in writing, while there's still someone around who remembers you and before the company goes bankrupt.
  
• See if the company will pay for a lawyer to check the T&Cs of the severance agreement - mine said you many not disclose the amount of the settlement, but didn't include a non-compete nor prohibit me from poaching from the remaining staff.
  

It's funny how things go around. The "vibe" at the time was almost the same as the vibe at the IPO - like a party. People who got kept their jobs were the most depressed, the people who got laid off felt they'd been freed!

Companies aren't and shouldn't be loyal to their employees when times are tough--

Agreed. After all, employees are always disloyal to employers when a better offer comes along. Loyalty only makes sense when the interests of both counterparties are aligned.

Re:Happening as we speak...

[perljon]

Businesses exists to make money, not to employ people. Every place I have ever worked, I get at least a paragraph about how no-one can make me a contract offer except the President and employment is at will for the employer and employee. I'm sure this is EVERYWHERE, cause I've even seen it on my High School Donatos Pizza application.

Where in the world do employees then get the idea that a company is entitled to give you a job? You knew the conditions of the relationship before you started; why do you honestly think you have room to bitch about them when you get axed?

Also, a lot of people have the idea that it is immoral to fire or lay someone off. Why? Because you expected to work there until it was convenient for you to quite? With the same argument, it is then immmoral for a person to quite or retire from a job. Afterall, the company expected you to work there until they didn't need you any longer.

I'm just an employee of a large insurance company, but I'm a realistic. We have a deal. I give 40 hours, and they send me a check every two weeks. I get certain time off, and some other benefits while I'm working there. It's in writing. If for some reason, they don't need me anymore or they can't afford me, they can lay me off. If for some reason, I find a better opportunity some where else, I can quit. If the company lays me off on good terms (severence package), I may come work for them again. If I leave the company on good terms (2 weeks notice), they may let me work for them again. I UNDERSTAND THE AGREEMENT. Don't read into it or make assumptions beyond this. They don't exists. If you don't like the agreement, find some other way to make money; ie, start your own business.

Think about that... starting your own business. Whatever you are doing, whatever your skills are, you are producing a profit for your company. Use those same skills to produce a profit for yourself. A little easier said than done, and a lot riskier, but it's a different agreement, and you can't get fired or laid off. You also won't get paid for lazy days or weeks or whatever, but it's a different arrangement.

Other possible arrangements include those of thievery, black market sales (ie, drugs), conning, marrying into money, hoping for rich granny to die, winning the lottery, living on the street, moving to a warm place and living on the street, traveling the world teaching english for food and shelter, mooching off your parents-friends-sibblings-etc, selling sex on the street corner (after all, it's my sexy body and i'll do what i want), sueing everbody, or even asking for donations and when refused suing for racial discrimination (it works for jesse jackson), living off of wellfare checks and food stamps, begging for change, begging for change on the internet. Send me $20 and I'll send you pamphlet on these alternative arrangements.

DISCLAIMER I neither advicate or advise doing anything illegal or immoral to make a living.

Here's what happens

[Violet Null]

Big company buys small company -- most likely for small company's tech, or customers, or what have you.

Big company institutes its policies on small company, perhaps cuts some of small company's redundant staff -- small company's HR department, for example, goes bye-bye.

Small company is now dependant on big company for resources, like HR.

Attrition begins on small company: if big company is doing layoffs, small company has to do layoffs with it, but small company doesn't get many (if any) new hires.

Small company, which now has less employees, can do less, resulting in big company treating it like a liability and stepping up the attrition rate.

Small company eventually folds, with any remaining employees fired or relocated to wherever big company is.

Long story short, big company buys small company because small company has something it needs. Once it has it, it doesn't need small company beyond a short transition period, and it's not going to keep small company around.

Yes, I'm cynical.

Historical perspective

[Anonymous Coward]

I was an employee of Cobalt Networks when Sun bought them. The #1 piece of advice:

Make sure the company buying really knows what your company does, has realistic expectations of what they want you to do for them, and is not over-valued in the market. If none of these happen, hope to the Gods they vest your options when the merger hits (Sun didn't) and that they have a good severance plan (Sun did).

In the case of Sun/Cobalt:

* Sun didn't understand the Linux market and therefore didn't realize that Cobalt appliances were -not- going to carry them into the Linux server space.

* Sun didn't understand that to penetrate the linux server space (beyond appliances) they would need to add people to the Cobalt force if they also expected the server appliances to continue. Worse, Sun didn't allow the group to replace members who left.

* Sun didn't understand the sales model behind the Cobalt appliances and just assumed that sales and support could be folded into the same organizations as everything else. This killed the Cobalt sales model and forced many distributors to go away. I won't even talk about support beyond that fact that after Sun it was even worse and Cobalt struggled there to begin with.

* Sun / Cobalt chose not to vest employee options at the time of purchase, supposedly to provide incentive for employees to stay on with the company. In truth, it did have that effect (and we also got a 6-month retention bonus) but in the end it meant no one ever saw any money from stock options unless they got in when Cobalt was valued at less than $3/share.

* Sun was very overvalued during the tech bubble. I don't know of anyone who joined Cobalt after November, 1999 (when they went public) who made any money off of stock options except for the 2 or 3 people at the very top. If they had vested employees at the time of merger this would have been different.

* When Sun saw the bubble collapsing they decided to slowly kill off Cobalt by attrition rather than invest in helping create new appliances that would satisfy new markets.

* When the RIFs/layoffs finally hit about a year after the merger, more than 50% of the former Cobalt field employees were gone (average at Sun was less than 20%) and about 30-40% of the employees at the home office were hit.

* A year later, when further RIFs/layoffs hit another year later, most of the rest of us were gone. Damage estimates so far make it appear that they laid off nearly 100% of the field folks and about 30-40% of the home office employees. About the only people left from Cobalt are the folks key to providing engineering and support to the existing products.

* The only decent point is Sun had a decent severance package. Most people got between 2 and 6 months of pay depending on how long they had been with Sun.

* Based on what was being said before the last RIF, it would appear that the appliances are on their last leg. Most of the folks that came from Cobalt now work on things like the LX50 (GP server) and Sun Linux, though it sounded like Sun Linux was due for a major shift out of the mainstream, too, despite all the promises that were made for that.

Overall, I think Sun was a good company to work for, the problem was that the Cobalt folks were creating things that were outside the box. That's a bad place to be ... make sure they draw the box bigger if you plan to stay at the new company.