An acquisition can be a great exit for your business.
In some cases, a strategic acquisition could achieve a greater price and be closed more easily than taking it public, i.e. list it on the stock market.
Though despite the nonstop media of Mergers and Acquisitions, not every startup is going to get bought.
To find out all you need to know about startup acquisitions and make your business attractive, so it’s ‘acquirable’, consider the following questions and information.
Is Your Board On Board?
Are your board and any other voting stockholders on board with an acquisition as the desired exit strategy?
Is their timing in alignment with yours?
Are you in agreement on approximate prices and when to let your venture go to someone else?
Do You Have What Buyers Want?
What do you have to offer? Are you serving up what your most likely buyers want most right now?
Some of the most common reasons startups get acquired include:
- To acquire a team with proven talent and expertise
- To add growth to their larger and slower operations
- To add profitability to existing customer bases and lines of business
- To harness a hotter new brand
- To eliminate competition
- To implement new technology faster and cheaper than they can create it
Are Your Documents Clean Enough?
Even if the idea of acquiring your startup is attractive to investors and they like you, are your documents organized and clean enough to make the process of following through with the acquisition appealing and viable?
Are you using the right accounting methods? Is your corporate structure optimized for fundraising and an acquisition? Are your contracts, human resources paperwork, leases, and IP protections all in order? This can be more important than you think, and no one wants a messy and hellish due diligence process.
Is There Proven Demand For Your Product?
Big ideas are great, but it’s all about whether they can turn a profit when it comes to a saleable business. You may not need to be profitable and have revenues in the early stages of fundraising or even to go public these days. Yet, an acquisition is much more likely to be about the money.
You should have proven demand for your product, commercial viability, and a big enough market by the time you think about selling your company.
Is Your Business Scalable?
Is your business model scalable? Is there enough of a market to go after that is exciting and can add greater profitability to the acquirer with their infrastructure and financing?
Have you really priced your product right and built-in enough margin for additional sales channels and the administrative burden that comes with being run in a large organization? Are your numbers massive enough to warrant the price you are hoping to get?
Do You Have Enterprise Level?
Big money is in enterprise-level business. Showing a path to enterprise, or even better, demonstrating traction with an enterprise-level service or product will greatly increase your chances of being acquired.
Many startups struggle with this, and many don’t start out with an enterprise-level solution. If you can find it, it will definitely give you an edge in attracting buyers.
Is It Vital Investors Acquire Your Business?
Is buying your business a must? What happens if they don’t? To position your startup for an acquisition, you need to raise the pain level of not making the winning offer and make the process and promise of integration far more pleasurable than what they have now.
Do they risk you becoming a competitor and disrupting the industry if they don’t own you? Are they handing their competition the kryptonite to their superpowers if they don’t act?
Do You Have Synergy?
The vast majority of acquisitions flop, with only a few that actually become profitable and successful; therefore, it’s often a wonder why big companies try and dedicate so many resources to M& A activity. The answer is, it can be an efficient and the most cost-effective method of operating and meeting investor expectations, so sometimes it’s necessary.
The most significant factor in whether these mergers and acquisitions survive or fail is usually integration.
Culture, systems, and synergy in client bases are all a part of this. The more synergy you share, the more confident buyers will be in taking the leap, and the more they can afford to offer. This can also go a long way when it comes to negotiating the final terms and any earnouts.
Savvy entrepreneurs will use this knowledge to build in as much synergy as possible throughout their development. They’ll highlight it through their media releases and in early conversations. It is also demonstrated by the synergy in meetings as you build a relationship with these contacts.
This certainly isn’t a single factor either. You’ve put in a lot of sweat, sacrifice, time, money, and energy. A big payout may be enough to convince you to bow out of your business. Most likely, you’ll also be selling because you believe it is best for the business, team, customers, and the world. The last thing you want is for your venture to fail due to selling to the wrong buyer.
Do You Have Relationships?
Alejandro Cremades, a serial entrepreneur and the author of The Art of Startup Fundraising; built and exited CoFoundersLab, one of the largest communities of founders online. He has interviewed startup founders on the DealMakers Podcast, many of who received offers and invitations from big tech giants like Google out of the blue.
Alejandro often says that an M& deal will come out of a relationship with existing contacts or an M& advisor that runs the process. The more people you meet and really connect with, the higher your odds of selling to the right buyer. Make sure you are budgeting time for this each month, right from the start.
Alejandro’s book The Art of Startup Fundraising with a foreword by ‘Shark Tank‘ star Barbara Corcoran, and published by John Wiley & Sons, 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.
In this article, Alejandro shared this knowledge of the challenges startups face with potential acquisition and merger activity. Before CoFoundersLab, Alejandro worked as a lawyer at King & Spalding, where he was involved in one of the most prominent 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 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.