Reality check: life of founders after selling majority stake
April 05, 2023
by an intermediary in New York, NY, USA
Hi all
Note - This can be answered by founders who have gone through an acquisition as well as acquirers who have acquired businesses.
I am a founder in the SaaS space currently in conversation with a PE interested in acquiring a majority of the company (51%) leaving us founders with about 39%. (10% will be employee options).
While the deal details are being worked out, I would love some real perspectives on the following:
1. Titles - We know they will bring in a new CEO and more experienced operators to drive growth in the departments we run. While I do think the new expertise will be good - how will they decide what our roles will be?
2. Salaries - As founders we have paid ourselves below market for a long time. The hope was if we got funding we would get closer to market. In this case, it isn't traditional VC funding, where we would be able to decide - now the PE will decide (I assume). So how do salaries of the founders get altered or decided when the PE takes over operations?
3. Expectations & Terms - From what we've heard in conversations with them, they say they are founder friendly - but I'll only believe it when I see it. What are your experiences of working in the company you founded with a minority stake post acquisition - any goals you were asked to meet, etc? Are there terms that can risk you losing your final exit equity when they sell the company a few years later?
Thank you all for your help! Your guidance and perspectives will help. If we go through with being acquired, I look forward to returning here as an acquirer :)
from University of Nottingham in London, UK
If the offer is based on a specified normalised EBITDA (which includes your salaries at the current lower level), then any proposed salary increase may reduce this normalised EBITDA (as they argue this will be the normal level going forward).
In this scenario we see the slightly bizarre case of founders trying to argue for a lower salary going forward. This is because if you are getting a 7x multiple on normalised EBITDA for the business then any salary increase will reduce your initial consideration by 7x.
However if you are planning on staying with the business long term post transaction you will need to weigh up the reduction to initial consideration vs the longer term benefit of a higher base salary.
Hope that helps!
from University of Southern California in 1 World Way, Los Angeles, CA 90045, USA
1) Get as much cash up front - limit the hurdles or long term incentive plans especially since you will not be in control
2) Be prepared to walk - you probably won't like working for a boss so dont sign a long term contract
3) Push for a market appropriate salary & a retention bonus for all your key people
4) Make sure you enjoy the money you just made - you can take your foot off the gas a bit
5) Make sure you are aligned with PE management and the new CEO esp during transition or your teams will crumble; its a stressful time for them too
Happy to chat further about my experience as well. Ran the Integration Office for 2 of the 5 deals.