Merger (or Acquisition) Recommendations?

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?"

Comments

Here is what you have to do.

[Mensa Babe]

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.

Why be aquired?

[DarkVein]

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.