When you are going through an acquisition with a good M&A advisor it is important to have a plan of action and set clear-cut objectives for the sale. While you might be thinking of your bottom line, there is a whole range of other objectives that need to be considered because they will impact your team and the company’s future success.
- What are the reasons you want to sell the business?
- Which acquirer is best suited for you?
- What are the exit strategies for the co-founders?
- What do you want for your team?
- What do you want for your customers?
- How will the mission be continued?
Knowing what you want out of the acquisition will give you more control. Have minimum and maximum lines clearly defined, and plan for negotiating, and the unexpected.
Prepare The Team
Preparing the team for an acquisition is another important aspect of keeping control of the process. The buyer needs to fit in with the company culture, or the transition can be painful. Can your team align with the acquirer’s values and beliefs? How can you prepare your team for the acquisition?
- Keep your team informed: Never blindside your team with an acquisition if you can help it. Instead, communicate often with your team and answer their questions and concerns. You can also offer them a timeline with milestones concerning the acquisition to put their minds at ease.
- Develop a transition plan: A well-developed transition plan will help employees from both companies integrate. While the buyer might have his own plans, such as training plans, company name changes, and more, you can still have an effective strategy for preparing your own team for the transition.
- Unify company objectives: Get your team acquainted with the new company’s culture and values, so they know what the new company expects of them when the acquisition occurs.
- Be positive: Positivity is a game changer. Don’t let your team get discouraged because it can affect their productivity, and ultimately the valuation and ability to close the deal.
Get an expert valuation
Valuations don’t only let the acquirer know your worth. It helps you to know how to negotiate during the acquisition process. Valuations will help the acquirer understand the startup’s potential for growth and establish a baseline value.
Get your accounting in order
The acquirer is going to tear right through your financials. As they should before making a big purchase. But if you have your accounting in order; revenue, expenses, and assets supported by documentation, the acquisition process will go a lot smoother.
The following are some of the documentation you need to gather:
- Past performance: All of your accounting up to this point.
- Short-term projections: These include weekly, monthly, and the following year projections.
- Multi-year plans: These include 3-5 year projections that give the acquirers insight into the future of the company.
The Startup Acquisition Process
Now that you have positioned the deal and established your worth, you can get the ball rolling on the acquisition process.
Develop an acquisition plan
Your acquirer is already developing a plan to negotiate the offer. Prepare yourself with potential offers and negotiating steps so you don’t get steamrolled by a large corporation. You know they have seen value in your business, or they wouldn’t be devising an acquisition plan.
Prepare an acquisition team
Gather an acquisition team with IT experts, the CEO, an acquisition lawyer, and all other relevant personnel you feel should be at the acquisition meeting. They help provide information on the startup’s technical infrastructure and inner workings of the business that the acquirers might have questions for.
Do your due diligence
The acquirer will be doing plenty of digging of their own. Don’t just leave the ball in their court. You should be vetting them as much as they are investigating you.
An acquirer will often start out low. Counteroffer, and both parties can meet in the middle. How much do you want? What is your company worth, and are you willing to part with the startup for less? Make sure that everyone’s objectives can be seen in the final agreement. Don’t feel like you lost a battle. Ensure the conversation is within the parameters of your main objectives before you get too deep. Especially as you can expect a lot of renegotiating and discounts in the process.
Closing the deal
Closing the deal is a huge moment for a startup, and even when things have gone according to plan, you may experience mixed emotions. Contracts are signed, and now you know your hard work and effort in your business has paid off, it’s time to let go.
What Acquirers Consider When Buying a Startup
You can control the acquisition process by knowing what the acquirers want. They are not just looking at the dollar signs. Understanding their mindset will help you grab their attention and get the best deal for yourself and the buyer.
So, what are acquirers looking for in a startup? This can vary widely, but may include:
- Cost per customer: What does it cost to get a new customer? The acquirer will want to know what it will cost to get new consumers and the cost of tapping into a new market.
- Customer base: Is your customer base thriving? If you already have traction, buyers will notice.
- Team expertise: How much experience does the team have? A good team has knowledge of the product, consumers, and industry the potential buyer might not.
What To Consider Before An Acquisition
Selling your startup can be a life-changing experience. You have put everything into it for the last couple of years, and you may feel a deep connection to the staff, the product, and the business. Here’s what you should consider before taking the leap.
Are you ready to sell your startup?
Startups can take years to establish, and the demand can begin to pile up. You know you’re ready to sell when you are prepared to hand over the stress and anxiety which often occurs to first-time founders. You may even decide to stay on after the acquisition or move on to greater things.
Is it the right time to sell?
Founders may begin to experience burnout when you need to keep raising funds. To relieve yourself of this burden, your choices are to increase capital or a merger and acquisition venture.
Will you be able to accept the consequences?
The consequences of the acquisition include:
- Having enough money to retire or fund future ventures
- The acquirers might not take care of your startup as much as you hope
- There needs to be enough money to pay your early investors off
The Bottom Line
The acquisition process can be laborious for the founders and acquirers, but the common goal is to generate value. The last thing that the founder should be worried about is losing control of the acquisition process. You understand the value of the company and its potential for the future, so you deserve appropriate compensation for the work you put into your product.
To keep control, you need to know the ins and outs of the company. Have all your financials in order and prepare your team for the acquisition. Do your due diligence and hire a valuation expert as well as a full acquisition team to ensure you are getting the most out of the deal. You have done the hard work and deserve to reap the rewards.
Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a foreword by ‘Shark Tank‘ star Barbara Corcoran, and published by John Wiley & Sons, the book was named one of the best books for entrepreneurs. The book offers a step-by-step guide to today‘s way of raising money for entrepreneurs.
Most recently, Alejandro built and exited CoFoundersLab which is one of the largest communities of founders online.
Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding where he was involved in one of the biggest investment arbitration cases in history ($113 billion at stake).
Alejandro is an active speaker and has given guest lectures at the Wharton School of Business, Columbia Business School, and at NYU Stern School of Business.
Alejandro has been involved with the JOBS Act since inception and was invited to the White House and the US House of Representatives to provide his stands on the new regulatory changes concerning fundraising online.