Best of the ISP-Lists

Being Bought Out

Members of the ISP-Investor list advise business owners to get paid when they sell the business, and to avoid working for the new owner.

On the ISP-Investor list in September, JM shared a personal dilemma:

"I own a small web hosting company, and I'm considering a merger with a company about ten times my size. I am to remain with the company, providing management services for a salary and benefits, but they are not offering any up-front compensation. This feels to me like they're asking me to hand them my business in exchange for a weekly paycheck. What should I be asking for instead?"

Responses were unanimous in urging JM to demand compensation up front:

[LM warned] "This happened to me. BIG MISTAKE. Never again will I, not once, not ever, go to work for someone who bought my company. It was the worst year of my life. I became their indentured servant, and I watched the business slowly go broke as they ran it into the ground.

Cut the cord, get your money, get out, and never look back."

[RS added] "Your company is worth something in and of itself. Unless you have a big pile of debt, taking only a paycheck without receiving additional cash or equity would seem like leaving money on the table."

[ARM suggested] "They should show you the manner in which they value their company; then you can apply the same assumptions as they do to value your own company. However, at the end of the day, the company is worth what one is willing to pay for it."

Others added that it's best to separate merger issues from career issues:

[JN noted] "Selling companies and getting a job should be separate ventures, unless they are willing to pay you millions a year."

[RCM added] "My advice is that you totally separate the employment issue from the corporate sale issue. They are two different transactions, and the valuation of each can be made ambiguous if they are bundled, which is what an astute investor may attempt to do to a neophyte investor."

BL offered the most thorough response:

"Your company is worth plenty. Your time is worth plenty. And your equipment and other assets are worth something. Be sure to watch for these things that happen every day: (1) Your compensation is just a weekly paycheck, and they fire you the next week; or (2) Your compensation is stock, and it becomes worthless. Here's my suggestion: they buy the company for cash AND shares of stock, and you agree to work for them for one month to aid the transition.

Since you want to work there past the month, they agree to continue to pay you the same amount per month for your time. You can quit any time; they can fire you any time; and you still get the cash and the stock for your company and hardware."

Related article
Selling Your ISP?  Best of ISP-Lists
[September 19, 2000] Members of the ISP-Investor list complain about calls from people claiming to be interested in buying their ISP, but who disappear after obtaining sensitive business information. Be careful when selling your ISP.

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