Horrifying story. I hope Goldman gets held liable for that billion in damages.
At the same time I think that there are some important lessons here. The big one that comes to my mind is always have an exit strategy. For example, if I am able to make my business take off great. If it gets acquired and I end up not liking the new bosses, great, I can quit. But what can I take with me? What do I do after that?
I am fortunate in this area to have a lot of people who, while not aware of the whole situation can still nonetheless provide some help with that question. And I am grateful to those who have pushed a greater open source angle here.
And of course we can find how many missed opportunities there were to notice that this deal was bad on everyone's side. But the question for the rest of us not involved in litigation is what we take away from it.
I take away from it:
1) Be very careful about M&A. If something doesn't look right, it probably isn't.
And, never, never, never, never, NEVER do a stock swap for a payout. In the finance world, holding $580 million in equity in a single position--a single company--is called flushing that cash down the toilet.
The objective of anyone with a single position composing a majority of their value, or even anything much larger than a double-digit-percentage, should be to get out as quickly as possible. Why? Tail risk associated with your position introduces volatility cost into your portfolio, and the risk alone chips away at the value. That $580 million was probably already worth less than $500 million the instant that they decided to do a stock swap, just because of the volatility risk of being that undiversified.
Lesson learned: get a third party financial adviser who will mediate with Goldman for you on your half-a-billion-dollar deal. Don't pay Goldman a flat fee disincentivized from performance. And NEVER leave all that equity tied into a single position. Yes, Goldman could be at fault here, but it would in the same capacity that a negligent driver is at fault for rear-ending someone who let their brake-lights burn out without replacement.
I mean for a deal like that, the immediate question is "why no cash?" Cash is operating capital and it requires business commitment to pay for it. Equity is an accounting entry, limited only by laws and bylaws of the organizations.
The only reasons I can think of are:
1) The stock of the purchaser is overvalued and the purchaser knows it,
2) The purchaser doesn't want to spend operating capital on the acquisition...., or
3) The purchaser doesn't have the operating capital to spend on the acquisition.....
At the same time I think that there are some important lessons here. The big one that comes to my mind is always have an exit strategy. For example, if I am able to make my business take off great. If it gets acquired and I end up not liking the new bosses, great, I can quit. But what can I take with me? What do I do after that?
I am fortunate in this area to have a lot of people who, while not aware of the whole situation can still nonetheless provide some help with that question. And I am grateful to those who have pushed a greater open source angle here.
And of course we can find how many missed opportunities there were to notice that this deal was bad on everyone's side. But the question for the rest of us not involved in litigation is what we take away from it.
I take away from it:
1) Be very careful about M&A. If something doesn't look right, it probably isn't.
2) Always have an exit strategy.