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Often not.

I went through an acquisition of an unsuccessful company. My employer created a shell which is what was acquired. The old corporation wasn't acquired and existed as an independent entity to wind down contracts / deal with the acquisition hold-back, etc.

If eg smyte was out of money, this is plausible. And all of a sudden no-one was there to run the old corp.

crunchbase says they raised a $4m A in Mar 2017, but linkedin says they had 23 employees. They could burn that in 1.25 years with 23 employees and have hit a cash crunch.

I have no knowledge, just speculation.

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Don't know to which jurisdiction smyte belongs, but in many countries creating figureheads/companies, dumping them, firing all employees and then buying the leftovers and rehiring people is considered the same a acquiring the company. E.g. finding ways around laws does not make them invalid and (sometimes, not always) you have to follow them anyway.

But if it is all within the states, it could be just that.

> If eg smyte was out of money, this is plausible. And all of a sudden no-one was there to run the old corp.

Sound more like a tech/knowledge acquisition to me.

4M$ for 23 employees only works if you have proper financial management though.

I'm still owed money from a start-up that went bankrupt, got bought by another company which is operating it as if nothing happend

You could probably sue them, though. Have you spoken to a lawyer?

Disclaimer: I am not a lawyer.

lol, it's just enough money to hurt, not enough to sue :/

That is not a good structure for the acquisition, especially if you are on the hook for the shell. Quite often you have all of the responsibility to deal with shit hitting the fan but no resources or personnel to actually do it.

That is (obviously) the trick: the "acquirer" doesn't acquire the shell. And therefore is on the hook for nothing. Customers have contracts with a corporation with no assets and no employees.

That's a pretty shitty thing to do. I would call such behavior immoral even consider it's all about not honoring contracts with customers.

I wonder if this flies with a judge.

Otherwise it would be a good way of making debts disappear.

Yeah, it could be borderline with fraud.

In some parts of the world it's actually a very common scenario. You not only get rid of debts in this way, but also employees.

It doesn't work that way. You can't just transfer assets into a shell and leave the liabilities. Any lawsuits would be able to go after the assets, even if they were in a separate shell companies.

You can't transfer assets into a shell, but you can buy certain assets you want (e.g. IP) for a reasonable price even if it is much less than the liabilities, and take over the employees (which aren't "owned" by the company and thus an asset), and leave the old company to bankruptcy.

Also, it's quite plausible that Smyte had negative value before the acquisition - that it's going to be an "empty sack" not because valuable assets were transferred elsewhere (which can be reversed in courts) but because its debts already exceeded any value it had, that it was an empty sack in the first place and no debts can be paid in full in any case.

Two things:

* If the assets were bought, they'd be the property of the original company, and the money would go to the company, which would therefore have money to be sued for.

* If the directors took that money out of the company, full in the knowledge that they had legal liabilities as the result of terminating service, at least in the case the UK (and I can't speak for US law), they'd be guilty of a number of crimes, as they are responsible for acting in the best interests of the business.

What I mean by "its debts already exceeded any value it had" is that it's quite plausible that any money paid for the assets immediately goes to the company's current debtors (including some investors, if convertible debt was used instead of equity) to partially cover their existing debts (which would be a fully legal and correct action by the directors), and there's nothing left to be sued for future liabilities.

There are startup acquisitions which result in lots of money being paid to investors, and there are acqui-hires which amount to a pre-bankruptcy firesale to get part of the money back, but resulting in unpaid debt and bankruptcy anyway. I don't know about Smyte's financials, but it may well be that their situation is like the latter case.

I don't see any reason to suppose that there some big bag of money (even post-acquisition) that's somehow illegally taken out of the company. It may well also be that the money paid to the company itself for acquisition is insignificant, and the rest is in form of some "hiring bonus" to make the transfer of employees work, so not something that the debtors can claim.

Obviously this is massively speculative at this point in the conversation, largely a thought experiment, but --

Any side payment to the directors and staff outside of the acquisition - such as a "hiring bonus" as you suggest, which lead to the sale of assets at a lower price than would otherwise be the case - I'm pretty certain (again, in UK law, and I'm certainly not a lawyer), that this would be seen by the courts as a bribe, ie. money paid to perform their duty to the company improperly.

See item 1.2 from the Bribery Act 2010: https://www.legislation.gov.uk/ukpga/2010/23/crossheading/ge...

Obviously not exactly relevant in this case, but I'm guessing there's a US analogue.

it's totally kosher in the US.

In my failing startup that was acquired, all eng got a carve out. It was basically a bonus to get us to remain employees after it became obvious the company was failing and was going to be sold.

I'd imagine the legality goes like this: without that bonus, I certainly would have left. And there would have been nothing to be sold. So it was long-term better for investors.

It's only legal because there is a legitimate reason to pay it. The board members in charge have a fiduciary duty to the shareholders.

So you will see payouts and bonuses to executives to get them to stay with the sinking ship in hopes of eeking out more money before the collapse, but if you were to just pay a bonus to an executive on their way out, you would have a very hard time justifying that and could be sued for breach of your fiduciary duty.

The original company could have argued that the value received for its assets was less than its liabilities. It’s perfectly legal, but way overused in tech (where assets are overwhelmingly in the form of IP without an easily established market value).

This type of uncertainty does lead to a situation where potential customers are wary of using a startup service — I can’t build a business off your service if I don’t have confidence your company will want me as a customer in 3 years.

Ultimately I think we’re witnessing the final consolidation of the software industry. I expect the cloud/software industry of the next 30 years to start to look much like telecom over the last 30 years.

Probably worse for consumers short term, but ultimately the plumbing isn’t all that interesting and it will hopefully enable the next round of innovation.

This is a very common setup. It's called a reverse triangle merger.

https://www.investopedia.com/terms/r/rtm.asp

Yes, I see:

> Because the reverse triangular merger retains the seller entity and its business contracts, the reverse triangular merger is used more often than the triangular merger.

I was going to say "I wish that I could do that!" But then realized that bankruptcy comes pretty close.

But why would a judge not go, "No, Twitter, you clearly acquired the company. Just because you broke it into pieces, and then picked up all those pieces does not mean that you didn't acquire the company."

So, in a way, you're saying smyte shut down smyte. Then Twitter swept in and picked up the pieces. Kinda?

The problem, it seems, Twitter got the timing __all wrong.__

This seems like by far the most likely case. That said, Twitter should know better than to let this happen, anyone could have predicted that the optics would place a lot of blame on them. I can't imagine Twitter couldn't support an additional 7 days after giving warning.

They had customers (hence the problem) and so they had revenue. So they should have had plenty runway.

It's not unlikely the costs of work performed for these customers wasn't enough to keep the company running. Honestly, it looks more like "let's cut down on costs, immediately", rather than a mistake on a part of an exec.

It's very easy to have revenue but no runway. If your monthly burn is $1M and monthly revenue is $800K and you have no cash in the bank, you have no runway.

They had a $4m raise a year ago and 22 employees. They must have had a very high compensation scheme.

not really.

$4m over 1.25 years (and don't forget comp costs the company 1.3) == $2.5m comp to employees per year. That is not much for 22 employees.

math: (4/1.25)/1.3

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