Courting an Acquiring company - any tips?

[Nick HaC]

Hi

It seems there are plenty of books on how to start a startup, how to
bag the elephant, how to succeed at sales etc etc

I have never seen any information on best processes for courting
potential acquiring companies and or the techniques best used to lure
in and close an acquisition on each the different profiles of
potential buyers.

- What types of buyer profiles are there?
- What tactics are best used for each?
- What strategies should be used for creating your company as
desirable vs not seeming unavailable?
- When you really want a sale, how do you express this without coming
across easy/desperate?
- Do you start by offering a distribution deal with options for
performance incentives?
- Do you go in direct with a term sheet and high ball?

Is there any books, blogs, information out there that you can advise me to read?

We have a company we are in 2/3rd round discussions in with regarding
acquisition and my next meeting is with their Board/MD/CEO... and i
really am unsure how to play this?

Any tips?

Nick

[Nick Gonios]

Hi Nick

I have always enjoyed Tom Mcaskills views on building and maximizing
the value of your venture.

Check out his website at www.tommacskill.com

FYI - he's a successful Aussie entrepreneur!

Good luck.

Nick Gonios

[rantalot]

Nick,
As with any significant financial transaction, you'd be well advised
seeking professional guidance on this.
Every deal has its own potential pitfalls and upside, and having
someone represent you on this could easily deliver a much better
outcome for you.
And, as it turns out, I am doing some work now with a boutique
corporate advisory firm that does just that!
I'll contact you offline to discuss
Rob

[Mike Nicholls]

Hi

I agree with Nick G, I have been to a number of Tom Mckaskills courses over the last 5 years organised by Entrepreneurs Organisation including his Proactive Trade Sale Strategies course which helped me with the sale of my original business, massive return on the cost of the course, in hindsight had I implemented all of his strategies the outcome would have been significantly better.

I am not aware of any teachings of this type in our Universities its not a recognised discipline

You can buy softcopies of all the books here
http://www.tommckaskill.com/

I think he does the courses on demand but have cced him on the email

My take homes from his courses

1. Competitive Tension - Always have 2-3 bidders hot for buying your company, its hard to sell a business, having only one buyer will almost certainly lead to a lower price
2. Documentation. IP, Contracts, Financial's, Taxes, OHS, Employees, Customers, Suppliers etc. You need to prepare a full due diligence pack ready for distribution (or data room) well in advance, there are reasons why you sell, not all of them are in your control, if you can get all the docs required together well in advance it shows great preparation and speeds the sale process significantly, it also keeps you in control as you aren't on the back foot searching for or creating documentation. Also when you go through it in advance, you find the problems before they do and can take action early
3. You will always get more for your business selling to a strategic buyer than on a straight Price Earnings basis. By strategic we mean someone (think established businesses with very strong distribution or channel that is missing a key technology) who can take your business/tech/IP and push it out to a much bigger customer base and then get a much larger return on your business than someone buying simply for the profit it earns as a standalone business. You will always earn more from the strategic buyer than a PE buyer
   

Tom - Perhaps you can give Nick a few tips and let the list know if there are any courses scheduled that they could attend.

Thanks

Mike Nicholls

--
MortgageCorp Australia Pty Ltd
FBAA Accredited Finance Brokers
(02) 8006 8002 lo...@mortgagecorp.com.au

[Niki Scevak]

I think one common thread amongst startup transactions (or non-
financially valued transactions) is that the acquiree company is
bought and not sold. That is, a larger company decides to buy the
startup for whatever strategic rationale versus a startup deciding it
will like to sell at time X and then going out and looking for offers.
The latter is certainly possible although you are likely to get a very
low amount if you have not had prior interactions.

So I think the first thing is purely establishing a relationship with
potential buyers and then trying to strike a partnership. A lot of the
interviews of startups that have been acquired by larger firms said
they started with a partnership discussion (walk before you run/date
before you have sex). The two are very intertwined. So in terms of not
seeming desperate I would start pitching a partnership and your ideas
of how you can improve their business (and only then talk about your
business and how it can help).

Once you have a bonifide offer that is when is most useful to appoint
an investment banker to make sure the process runs to a set time line
and also to create demand (but it's a lot easier if you have one
extremely motivated buyer to anchor negotiations). Here are some more
thoughts on that by Fabrice Grinda (founder of OLX): http://www.fabricegrinda.com/?p=28

[David Jones]

sounds like a great panel session for next growthtown.

All the comments are good and there is also a book from John Fisher called "strategic entrepreneurism" (I've not read the book but know John - his last company was in my segment and sold it to Oracle)

Given I've had successful and failed acquisitions (and also have been a buyer), my $0.20 would be:
- don't take your eye off the business, keep adding to your core value - its flattering if approached but until you get to terms its just talk.
- if they are serious, get a termsheet, then drive the variables out of the terms sheet where possible (earnouts etc). This could reduce the months distracted from the business. Also, buyers might want to change the valuation during due diligence - get them to enunciate what are examples where that would happen - otherwise they could tie you up for months and possibly weaken your leverage (I know someone that got bought by IBM and they sent an army to do the DD at microscopic detail - something a startup can rarely afford to do)
- (as discussed) competitive tension/leverage. If someone is having a sniff, who else would lose-out? (the Admob sale to google is an example of a strategic valuation (Admob revs were mooted at US25M) that excludes other buyers and probably caused some pretty interesting email exchanges at Apple board level)