Aquisition and bonus

[JBeanGarden]

TLDR: what financial return should I be likely to expect as a senior manager during a small business acquisition?

I currently work as a senior manager in a small consultancy company of 10. We operate at 80% profit and perform very well within our industry. My Google researched maths values the business at almost £8mil. I report directly to the managing director alongside one other person at the same level as me. We manage the day-to-day operations and running of the business, whilst also coordinating deliverables with the wider team, undertaking business development etc.

The managing director is currently in conversation around partial acquisition by a larger company. My colleague and I have contributed significantly to the acquisition process. If we were both to leave the company, it would be unable to continue operations. What financial returns should we be asking for, if any? My colleague believes we should be in line for some sort of payout or acquisition bonus, but we’re unsure how to negotiate having had no experience.

If you aren't a shareholder then surely zero?

In my experience, if they think you are really essential they will be talking to about some form of retention bonus. If they don't raise it, they don't think they need you that much.

This.
You’re hoping to blackmail your employer into payout that you’re not entitled to because you feel company can’t operate without you and your colleague.
Be careful that doesn’t blow in your face

My job is advising people selling business and part of they is how to pay bonuses to key employees as part of a deal process.

I’d say most commonly you’d get nothing, particularly at that deal size. Sometimes between £5k and £25k depending on how generous the shareholders are and how critical they view you/how much they value your contribution. I’ve seen bonuses of £100k+ paid in similar scenarios before now to the right hand “man” to the owner.

But generally bonuses, if paid at all, are paid to a handful (maybe 5) of employees - so if you’re not in the five most important I’d expect nothing/very little, and even then I wouldn’t be counting on anything.

I’d be amazed if a business of ten people was worth £8m. What’s your maths to get to that.

Some kind of retention bonus is possible, given you have been part of the process - what’s the owner of the business said as part of those conversations?

Exactly what this PP says , the only thing I would add is that it will likely be related to how valuable you are to the business going forward, especially if there is an earn out, as that makes you more valuable to both buyer and seller so they will want to keep you happy.

For context, we have been cut out of any conversations thus far between the 2 parties, but my md has told us only senior manager contracts have been requested (me and my colleague), there is talk of 2 year notices and a profit share model for us. We are primary to succession planning at his retirement.

We are incredibly profitable in a very niche market

Not at all. My colleague has had some discussions where people suggested he might be in line for something. It’s an open ended question, hence the ‘if anything’. I have never been in this situation and don’t want to be taken advantage of.

I’d say the main considerations here are:

• How much is the value of whatever they offering worth vs getting a new job elsewhere. Ie is it worth staying there two years for / what would you stay for two years for
• You are going to be paying normal income tax on whatever you get - so think about that in terms of the numbers.

The biggest negotiating point you probably have is probably on delivering X value by the end of that two years they want you to stay.

I think you are probably wildly over-valuing the business, and getting set on a figure you think you should have off the (hypothetical) value of the business is the wrong way to look at it.

You are not a shareholder of the business or on any incentives impacted by a change of control so you shouldn’t expect anything when the business is bought.

the new owners might agree that you are vital to retain and therefore might put you on some go forward incentive. This could take many forms from an annual bonus which gives a flat amount or a percentage of salary based on business performance through to a long term cash incentive or some equity in the new business.

We sold a business and gave key employees a bonus out of the money we received.

However in order to sell our business it had to be scalable and not really reliant upon any particular employees - it was more the processes we had in place and also our clients that were key.

So I am not sure you will get very far trying to negotiate a bonus at this point.

@JBeanGarden you are going to get a lot of the “being greedy” type of responses from people who don’t understand the situation. If you are really vital in succession planning as in the business plan the buyer has in mind then incentivising for the future makes perfect sense and you might benefit from some advice on what that looks like. If you want a referral pm me with where in the country you are and the type of business and I will see if I know someone who could help.

A bonus for the deal will depend entirely on the seller’s grace (assuming you don’t have anything contractual, which you would have mentioned) & you are best placed to judge how likely that is. Some sellers are very stingy.

I also wouldn't rely too much on a google guess. And remember the deal will be most likely structured so some cash upon sale but a decent amount will be held back upon meeting key deliverables.

Are you a shareholder? Often senior managers of small private companies hold equity in the company and during acquisitions get a payout. If you don’t have any, then all you’re looking at really is a potential retention bonus, so often linked to a certain number of years to keep working in the new company. This will depend on how much they want to keep you.

I think the best chance of a bonus/ pay rise might be in relation to changing your contract. If your notice period is being significantly increased, it’s possibly considered a worse contract, so you might be able to negotiate a bonus in “compensation”.

If you are vital to the future success of the company, a golden handcuffs agreement might be offered for you to stay for x year(s) after the acquisition.

The most valuable agreements tend to be made to c-suite who also hold shares or options to effect an orderly transition.