These sale prices are nuts!

Betabeat has learned that Gilt Groupe is in the final stages of acquiring the troubled daily deal site BuyWithMe, which laid off more than half its staff last week to sweeten the deal for potential buyers. The sale is a win for Matrix Partners, who has invested in both firms, and been backing BuyWithMe across three rounds and $30 million in venture funding.

BuyWithMe will officially be part of Gilt starting Nov. 1. The remaining sales staff who were left after last week's layoffs will be let go with one weeks pay. Gilt gets a lean company consisting largely of technology, a few executives, a large email list of customers and merchants partners in cities around the country.

At one point earlier this year BuyWithMe was consisered the number three player in the daily deal space after Groupon and Living Social. But it stumbled as competitors flooded the market and customer acquisition costs skyrocketed.

After the big layoffs last week, sales staff were asked to take a 25% pay cut. The idea was that after the acquisition, the garnished wages would be made whole. But that is no longer the case, indicating that the purchase price was fairly low.

On a conference call last night, employees also peppered CEO Jim Crowley with questions about unvested stock options. Typically in an acquisition vesting can be accelerated to compensate employees. But Mr. Crowley refused to answer these questions, and it seems like employees may be left holding the bag.

The assets from BuyWithMe will likely be folded in Gilt City, the daily deals offering from Gilt, which yesterday was announced as one of the 14 new partners for Google's daily deal offerings. Can you smell the consolidation?

One kind of pink slip can lead to another

Betabeat has been covering the layoffs at BuyWithMe since Wednesday, when more than half the staff, at least 100 people,  were laid off without warning or severance. There has been almost no word from the company or its management. As a result, we've had to rely mostly on anonymous sources who know bits and pieces. But over the last 24 hours, we've been able to put together some big pieces of the puzzle.

The statement released yesterday by CEO James Crowley, that the company was reorganizing to best serve its clients and customers, was disingenuous at best.  Numerous sources Betabeat spoke with confirmed that BuyWithMe is looking to be acquired by a larger player in the daily deal space, and has been for some time now. The layoffs were intended to make it a more attractive purchase.

How did BuyWithMe end up in such dire straights? Betabeat has heard from a source that not only did the company purchase six smaller startups in the last six months, burning through some of its capital, but it also took out a $10 million debt round from its backers that was never disclosed to the press. That goes a long way towards explaining how the company got to where it is today.

BuyWithMe was at one point regarded as the number three player in the daily deal space, talked about in the same breath as giants like Groupon and Living Social. But as thousands of clones started popping up in the industry, margins shrank and customer acquisition costs went through the roof. Consolidation and rapid growth became the name of the game.

In December of 2010 CEO Cheryl Rosner stepped down. Many hoped Chief Product Officer David Wolfe, former CTO of Napster, would get the nod, but instead an outsider, James J. Crowley, was brought in. Mr. Crowley had experience with big exits, having taken a company public in the dot-com days and overseen two big acquisitions over the last decade.

Mr. Crowley's first job was a roadshow, pitching investors on a Series C round of venture capital that would raise around $100 million dollars and value BuyWithMe at around $500 million. But while Mr. Crowley's track record looked good on paper, sources say he was a poor public speaker, and failed to convince any big funds to invest at that price.

Insiders say there was interest in partnerships from big firms like Amazon and Google, who were trying to get into the daily deal game themselves, and looking for companies with boots on the ground to source offers. But BuyWithMe declined those partnerships, despite the fact they would have generated substantial revenue, hoping to keep its brand autonomous and aiming for that big exit.

Everything changed June, 2, 2011, when Groupon filed for its IPO, and its financials became public for the first time. The biggest player in the space had long claimed to be profitable, but turned out to be losing hundreds of millions of dollars each year. Suddenly the emperor had no clothes, and all the companies who had been positioning themselves as players in the same space had a much harder case to make when it came to their value.

In the meantime, BuyWithMe had been losing steam. Industry insiders say that by the beginning of this summer, while it was still being talked about as a top player, it had in reality fallen to around the seventh biggest player in the nation. Copycats were everywhere. BuyWithMe tried to ramp up, buying six companies in six months to juice their growth. But sources inside the company said it wasn't working.

At the same time, the macro picture was getting dark. The IPO window that seemed to be opening for tech companies with the debut of Pandora and LinkedIn had snapped firmly shut again. In July, BuyWithMe purchased Edhance, a discount site aimed at college students. Insider say this was the most costly of BuyWithMe's acquisitions, but came with great technology that Edhance has developed. To help fund the purchase, BuyWithMe took out a $10 million debt round, which was never disclosed to the public.

BuyWithMe continued to purchase companies, acquiring Scoop St. the next month and TownHog in September. These were cheap deals, made possible by the fact that many daily deal clones were struggling themselves. But it was quickly becoming apparent that BuyWithMe was not going to be able to raise a new round of venture, and that an IPO was impossible. With about six months left before they burned through their cash, a sale became the only option.

To sell the company at a premium, BuyWithMe decided to lay off everyone who was non-"performing". Essentially this meant stripping the company down to its sales force, who generated revenue, and the executive team, who of course got a free pass. Founder Andrew Moss reportedly wanted to move most employees from full time to contract, saying a mass firing was like cutting off the legs to save the body. But source say he was overruled by the rest of the board, which includes CEO James Crowley and partners from BuyWithMe's backers, Bain Capital and Matrix Partners.

And so it was on Wednesday that 100 employees were laid off with no warning and no severance. Several large firms are still in talk to acquire BuyWithMe, and the company is now a lean property, consisting largely of a sales force, the technology from Edhance, and $30 million in venture backing which needs to be repaid. From a business perspective, it was probably the wisest course of action. But the human toll, and the way in which it was executed, are a grim reminder of what happens when the bubble bursts on an over-hyped industry.

TheLadder's 250 Hudson St. offices.

BuyWithMe wasn't the only local company hemorrhaging jobs this week. Betabeat has learned that TheLadders laid off about 30 employees this week, across all departments.

"It was like Black Wednesday," said the source of the overlapping job losses. However, where BuyWithMe let go of 55 percent of its staff, TheLadders downsizing was less severe, with seven percent of its 420 employees, according to our source who was familiar with the situation.

Until a month ago, TheLadders focused exclusively on the $100,000+ jobs market--its key differentiator in the market. The source said the layoffs were related to flat revenue growth at about $80 million, adding that the company's two biggest expenses were people and marketing costs. "They already cut marketing significantly," said the source, who called the job losses "cost cutting to reforecast budget due to lower than expected revenue growth."

TheLadders would not comment on the number of employees that were let go, total number of employees, or revenue, but CEO and founder Marc Cenedella offered the following statement by email, "TheLadders made some departmental changes to better align our company focus and investment on areas driving growth, enabling us to continue our industry-leading innovation. We remain singularly focused on providing the best service offering to all career minded professionals and recruiters."

According to Crunchbase, the last time TheLadders raised funding was a $7.25 million series A round in 2004 from Matrix Partners, the same VC firm that backed BuyWithMe. Kevin Ryan, founder and CEO of Gilt Groupe, who worked with Mr. Cenedella at Hot Jobs also invested in that round. Matrix Partners has also backed Gilt Groupe. Matrix Partner's Nick Beim sits on the board of directors at TheLadders, BuyWithMe, and Gilt Groupe. We hear it's not uncommon for staffers from TheLadders to move over to Gilt Groupe.

At the start of the year, TheLadders launched a TV campaign that some called overly provocative, but Betabeat found rather amusing and in line with the new absurdist Old Spice mode of advertising. Nonetheless, that campaign focused on $100k job market, something TheLadders pivoted away from this September with Mr. Cenedella's announcement that, "We’re expanding, and today we say ‘bye bye’ to helping only those over $100,000 and ‘hello’ to helping all career-minded professionals." In the comments, some job-seeking members balked at continuing to pay monthly fees that start at $15 for the site.

We're still looking for additional information, so please email: ntiku@observer.com.