KA-CHING!!
https://www.bizjournals.com/triangle/news/2019/07/10/real-millionnaires-of-red-hat-who-made-what-after.html
This time it is not just paper value of their stock holdings — this time, it is for real.
Slews of Form 4s – the regulatory paperwork required for insider stock transactions – dropped late Tuesday, as top brass Red Hatters finally got their first big dollar payouts from the $34 billion IBM deal.
The transaction, announced late last year and consummated Tuesday, involved several sweeteners beyond stock buyouts – including retention agreements that have the potential to add millions more to executive coffers provided they stay on under the IBM umbrella.
But Tuesday was their first taste – and top executives added millions – sometimes tens of millions – to their wallets when markets closed because IBM is buying out their holdings.
Mike Walden, economist at North Carolina State University, says the payouts are a double boon to the Triangle, starting with compensation to the owners of Red Hat stock.
"Second is the expectation that the combined Red Hat/IBM strength in the 'cloud' market will lead to growth in clients - which could translate to more local employment and revenues," he says.
These are the “disposition back to issuer” disclosures that dropped on Tuesday after the bell, ranked in terms of stock value. Many officers and directors may have owned restricted shares that may not have vested, and those shares were rolled over. The total share value below refers to unrestricted shares only:
Jim Whitehurst, Red Hat CEO: $50,385,530
Paul Cormier, Red Hat executive vice president and president of products and technologies: $38,956,080
Arun Oberoi, Red Hat executive vice president of global sales and services: $26,793,990
William Kaiser, Red Hat director: $12,038,780
DeLisa Alexander, Red Hat chief people officer: $6,920,750
Michael Cunningham, Red Hat executive vice president and general counsel: $5,863,400
Steve Albrecht, Red Hat director: $2,877,360
Eric Shander, Red Hat CFO: $2,412,050
Kimberly Hammonds, Red Hat director: $2,139,590
Charlene Begley, Red Hat director: $1,872,260
Sohaib Abbasi, Red Hat director: $1,528,550
Narendra Gupta, Red Hat board chairman: $1,395,550
Michael Kelly, Red Hat Chief Information Officer: $494,190
Kevin Murai, Red Hat director: $453,910
Alfred Zollar, Red Hat director: $444,030
As stock options have been part of the benefits package at Red Hat, top brass aren’t the only ones getting payouts this week - meaning a lot of new money flowing into the Triangle that wasn't here before.
In the wake of past M&A, new startups have emerged, investments in high-growth firms have been made and seasoned experience has been leveraged into new companies.
Take the exit of ShareFile to Citrix. CEO Jesse Lipson would use some of his returns to start Real Magic (and invest capital in broad entrepreneurship endeavors such as HQ Raleigh).
Serial entrepreneur and Accipiter (purchased by CMGI) founder Chris Evans leveraged his exit experience into mentorship efforts, such as the Blackstone Entrepreneurs Network, and his dollars into startups such as Tethis.
And Sean O'Leary would deploy experience gleaned from StrikeIron's $55 million exit to entrepreneurial support organization NC IDEA and later at FoodLogiQ.
Ted Zoller, director of the Entrepreneurship Center at UNC’s Kenan-Flagler Business School, calls Red Hat of the most important “entrepreneurial success stories” in the Triangle, but notes that the deal structure doesn’t provide the liquidity that creates the widespread entrepreneurial renaissance seen in Silicon Valley from billion-dollar unicorn IPOs.
He says the returns will be shared by key stakeholder over time.
“So don’t expect a massive uptick of entrepreneurial startups in the region from the acquisition funding by this new liquidity,” he says. “Nevertheless, this is a huge win for two of our important players in the region.”
He says the deal’s validation of the Triangle “as a major technology hotspot” could be its long-term value for the community.
But money is being made - and industry insiders say they are hopeful some will work its way into the entrepreneurship cluster.
David Gardner, a serial entrepreneur whose Cofounders Capital has financed firms such as FilterEasy and Undercover Colors, says Red Hatters know first hand the potential startups can have.
"Small fund, early stage venture capital is still statistically the best returns by far across all investment asset classes, but most investors still gravitate towards real estate, rental properties, the stock market and things that are easier for them to get their head around," he says. "The Triangle is especially ripe for investors because of its lack of early stage venture funds, massive deal flow and execellent valuations."
Lister Delgado, managing partner at IDEA Fund Partners says this kind of "recycling" of money - and even time - from successful local exits "is of crucial importance."
"It is what has made other entrepreneurial ecosystems thrive, and perhaps the thing that we are still missing and keeps us from getting to the very top as a region," he says.
And he has advice to those Red Hatters who might want to dabble in equity investments, either directly funneling money into companies or by investing in local venture funds.
"Either way, my one advice as a long time investor is to never invest in only one startup," he says. "Invest in 10 instead. diversification is key when dealing with young high growth companies."
As for IBM-Red Hat, execs have repeatedly said layoffs are not part of the plan for the combined company. And analysts have said in interviews that the deal's value lies in IBM's ability to keep Red Hatters on board. If it can't keep its culture and employees in tact, “then they paid a lot of money for a big mistake," said Technology Business Research analyst Cassandra Mooshian.