Dear SaaStr: How Do I Negotiate My Retention in an Acquisition? , Sastra

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Dear SaaStr: How Do I Negotiate My Retention in an Acquisition?

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Some Thoughts on Retention Compensation When You Are Earned

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First, understand that the acquirer almost certainly already has a strong understanding of what they want to do (right or wrong). Even if they haven’t told you yet. Second, understand that there are both carrots and sticks that can employ the familiar, and that retention can involve a combination of both. Third, be aware that it may be that negotiating blackjack is more lucrative on a pure basis, and often easier too (since it’s not new/extra money).

What are sticks?

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Riveting. It can be called different things, like holdback, etc. But it accomplishes the same thing. You would receive a portion of the $$$ the day the deal closes, usually in installments, for 12-24-36 months. You go away, you don’t understand. You get fired for a reason other than that, usually you do. Escrow. An escrow doesn’t sound like a stick, but sometimes it is. Sometimes, acquirers don’t actually pay the founders anything out of escrow if they are still employed at the company and claim escrow. It can be material. The given option (between signing and closing) from the current pool. The new options that come from the old pool are like stick-meets-carrot. They dilute existing shareholders and others, and if the founders are substantial owners, dilute them too, so it’s not such a big deal. But if it’s big enough to live in, it creates an incentive. MAD section. (mutually assured destruction). They say that when someone in the core team leaves, some stock vesting, bonuses etc. are lost by everyone in the core team. Especially common in engineering teams.

Specific Carrots:

Bonus stay. You stay 12-24-36 months, we pay you $X. based on time. New options/equities. New options that have been vested for many years. Earn-out 2.0. Extra pay if your business hits $YYm in revenue. Not really part of the deal idea like old earnings, a huge performance-linked bonus, if you don’t get it, the world doesn’t end, but if you do, it’s enough to motivate.

The thing is, carrots are harder to negotiate on sticks than down. Because carrots, they come from the departmental budget of the SVP sponsoring the deal. The SVP has to pay for the carrot. But the blackjack comes out from the purchase price. The SVP does not have to pay for the lathi. And the corp dev is the main negotiator here, and their #1 incentive is to close the deal, so at some point, they’ll give the blackjack to an extent, at which point they’re allowed.

So try to up/better the carrot. Absolutely, try it. But at some point, you can only take it so far. Budget is budget.

So have the toughest conversations on sticks. Cash is cash. Get all that you can. If you don’t make it 36 ​​months after the deal (and you probably won’t, statistically speaking) … you earned it.

M&A is zero sum. There’s no reason to leave any money on the table that you don’t have. Because your team won’t get it, no one will thank you, or appreciate it. It will simply disappear.

Here a little more:

8 Things That Change After Your Company’s Acquisition

Published on September 28, 2022



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