Assuming the deal is accretive, this should be “no-brainer” math your new stock in the combined company is worth more than it was before. Even in a 50/50 scenario, each ownership stake is half what it once was. First, you have to focus on the dollar value of your new stake in the combined company instead of focusing on the specific percentage. The only way around this is to reverse your way of thinking. Basically, everyone uses loose finance arguments to over-inflate their own company’s valuation so that they can demand a bigger slice of the pie of the new company. Most models are also based on forward forecasts, which offers another avenue for inflation. Anyone can create any number they want (within reason), as there is no one specific formula or metric for such work. Private company valuation techniques are particularly specious (this contrasts with a public company that every day has a definitive market capitalization). I call this the “dueling blowfish” problem. As an example you might hear someone say, “we closed the last round at $100 million post.” When two private companies began discussions on merging, these overall corporate values are often debated. Most founders and investors typically think about their personal stakes in a private company in terms of “ownership percentage.” An investor may say “we own 22% of the company”, or a founder may note, “I still own 31% of my company.” These same constituents think about the overall company value in terms of dollars. Some pretty high-profile mergers have fallen apart because of this issue. As a result, only if you have two teams with a shared vision for the future, and minds that are open to compromise could you ever hope to be successful. The bottom line is that it is very hard to merge two management teams, especially when you consider the contracted time window typically associated with such a discussion. Plus, you have the natural tendency to view any discussion as an “us versus them” type argument, which is not a frame of mind that is conducive to collaboration. It should come as no surprise that executives are fairly sensitive when it comes to topics of reporting structure and titles. Prior to a merger, you have two separate management teams (with two separate cultures), and in order to merge, you have to agree on who is going to do what, and what each executive’s new title will be. At the end of the day, structure is not a show stopper, but it creates a very high bar for consideration – you have to really want to make it happen to be able to sit down and sort through the complexity. There are numerous techniques for bringing together two such structures, but none of them are remotely elegant, and they all involve spending many, many hours with lawyers. Even melding two separate option programs can be challenging. But institutional investors are loath to give up previously negotiated rights, and this can be especially true when the investor in a competitive company is the one bringing the request. Finding a way to meld two complex capital structures is non-trivial, and may require compromise from many parties involved. There are common stock, common options, and as many as three to five different layers of preferred stock, each with a specific liquidation preference. Private companies typically have capitalization structures that are very complex. There are many reasons why private-private is so difficult, but allow me to highlight three specific challenges that seem quite prevalent. Public-public, and public-private are actually much easier to consummate.

And of course, we are afforded the advantage of greater scale.ĭespite that there may be many obvious reasons for any two companies to combine, most private-private mergers (where both companies are private entities) never come to fruition. There are many synergies – different geographic strengths, different core customer bases, and different product strengths.

As Benchmark is a large institutional investor in Grubhub, we were actively involved in the merger process, and we are quite excited about the potential of the two companies coming together. Today, Seamless and Grubhub announced the signing of a definitive agreement to merge two of the nation’s premier services for ordering takeout online.

Grubhub owns seamless