Tell Me Your Price and I’ll Tell You My Terms

negotiationI didn’t invent this quote (can’t remember where I heard it) but what a great one to help remember that with most business-related transactions, price is definitely not the only factor.  Three such transaction types relate to the things I commonly write about on this site:

  • Fundraising (valuation)
  • Technology licensing (royalty or license fee)
  • Acquisition (price tag)

In this article I provide insights into possible terms for each type of transaction that could dramatically change the value equation.

Continue reading “Tell Me Your Price and I’ll Tell You My Terms”

Approached for Acquisition – Now What?

start hereI have written articles about various aspects of M&A and have even written two, based-on-true-story case studies (titled “A Tale of Two Acquisitions”) to teach the numerous lessons I’ve learned throughout 14 acquisitions I was involved in, mostly as the buyer. But these days when I’m approach by an entrepreneur for advice related to M&A, it is almost always because they were just approached by an interested acquirer and are trying to figure out how to react, what to do next and what to prepare for should things proceed down the acquisition path. This article intends to serve as a “Start Here” guide for such a situation.

Continue reading “Approached for Acquisition – Now What?”

Misuse of Open Source Software Can Kill Your Acquisition Exit

open source software acquisitionHow can something that’s free and openly available cause so much unintended harm to your business?  The availability of open source software has contributed as much to lowering the cost of starting a software company as cloud hosting services.  So much so that it’s not unusual to find software companies with 40% or more of their code attributable to open source software.  But too many startups learn later as they’re in the middle of due diligence from a big acquirer that their practices for using open source software created significant problems – including reducing the acquisition price or, worse, killing the deal.

I previously described a specific example of this, which I was personally involved in.  You can read it here:  A Tale of Two Acquisitions – Part 1.  Let’s dissect the issues a little further so that you can decide what the right uses and processes should be related to open source software at your company.

Continue reading “Misuse of Open Source Software Can Kill Your Acquisition Exit”

A Tale of Two Acquisitions – Part 2

M-and-A graphic 2Common perception is that in an acquisition the acquirer has all of the power.  After all, they are the one that’s writing the check and they can walk away at any time.  But companies considering an eventual acquisition exit need not give up hope because there are several things that can be done to maintain a balance of power, if not an upper hand, during critical parts of the acquisition process.  I’m going to attempt to describe some basic M&A do’s and dont’s through the lens of two stories and the associated lessons learned.  Part one in this series (see related article here) had a sad ending for the selling company.  But Part 2 has a very favorable outcome.  Both stories draw from actual acquisitions I have been involved in, either on the buyer or seller side of the table.  But since I have been involved in 10 such deals to date and many dozens of exploratory acquisition approaches, I have incorporated elements from multiple engagements to better help demonstrate the lessons learned.

Now for the story.

Continue reading “A Tale of Two Acquisitions – Part 2”

A Tale of Two Acquisitions – Part 1

merger acquisition

For every headline you see about a tech company being acquired for some huge multiple of revenue or profit there are literally hundreds of other acquisition approaches that either ended in nothing or a much less desirable outcome for the company being acquired.  I’m going to attempt to describe some basic M&A do’s and dont’s through the lens of two stories and the associated lessons learned.  This first story has a sad ending for the selling company but don’t worry, Part 2 of this series has a happy ending (you can read it here).  Both stories draw from actual acquisitions I have been involved in, either on the buyer or seller side of the table.  But since I have been involved in 10 such deals to date and many dozens of exploratory acquisition approaches, I have incorporated elements from multiple engagements to better help demonstrate the lessons learned.

Now for the story.

Continue reading “A Tale of Two Acquisitions – Part 1”

Answering the “Exit Strategy” Question

exit strategyYou’ve just completed a great investor pitch with heads nodding and good interaction.  You’re about to ask “Does this opportunity interest you enough to explore an investment?” when instead you get a final question: “One final question.  What is your exit strategy?”.  Oops, the last two times you got this question you were met with a sour look.  The first time you wanted to show you aren’t looking for a quick-flip and so you answered something like, “We’re not even thinking about selling the company or doing anything crazy like an IPO”.  The next time you decided to show the investor you want everyone to get a payday and so you answered something like, “We’ve already identified six companies that surely will want to acquire us as soon as we’ve reached $5M in revenue.  They are A, B, C, D, E and F”.  In this blog article I’ll explain why you got the sour looks and suggest a different response that aligns nicely with both company and investor interests.

What Do Most Startups Want?

Most startups want to build cool products, sell them to delighted customers, bring a growing number of committed employees along for the journey, and make a chunk of money at some point in the future to help pay for a kid’s college, retirement or both.

What Do Startup Investors Want?

With only their investor hat on, they want a high return on their investment.

Continue reading “Answering the “Exit Strategy” Question”

Revealing Company Info Before Getting an Acquisition LOI

When an interested acquirer approaches you, they will naturally ask for as much information as you are willing to give them.  But how much and what type of information should you provide before you know the terms of their proposed offer?  The answer is, it depends.  Also realize I’m always initially skeptical when another company approaches with the desire to talk about potential acquisition.  My experience suggests that 30% of the time the interest is mostly a fishing expedition and 95% of the time no LOI is reached.  Let’s explore further.

Let’s start with the acquirer’s perspective.  If it’s a company you already have a close partnership with, they might already know a lot about your company (strategy, business model, key customers, high-level results, etc).  But in many cases they only know what is on your website or elsewhere in the public domain.  And it is fair for them to get enough information to decide how much they plan to offer and what the high-level deal terms should be.  That information is packaged up in a document called a Letter of Intent (LOI).  The LOI will include a term sheet with high-level financial terms that outline the offer but also some other key legal terms like escrow, exclusivity period, etc.  There are debates as to how much detail to include in the LOI versus leave for the final acquisition agreement.   But that’s a topic for another blog article.

Continue reading “Revealing Company Info Before Getting an Acquisition LOI”

Don’t Accidentally Kill Your Future Acquisition Exit

Too many startups discover they’ve got an acquisition-blocking or acquisition-inhibiting issue after a price tag has already been agreed with the acquirer.  It comes out during due diligence and the best outcome could be a reduced acquisition price, significantly increased escrow amount or something else not so desirable.  The worst outcome could be a busted deal.

Trying to “set the stage” late in the game is usually very difficult and sometimes impossible.  So why not think about it now and set some processes in place to keep things clean from an acquisition readiness standpoint?  Here are a few things to consider:

Continue reading “Don’t Accidentally Kill Your Future Acquisition Exit”

Are You Selling Your Company or is Someone Buying It?

If you find yourself in the position of considering a sale of the company, the significance of the distinction between selling your company and someone buying your company is HUGE.  Sometimes the situation is clear.  If you’re struggling financially and hired a banker to seek a sale for the company, there’s almost no way to pretend otherwise.  Similarly, if a powerhouse player  in your industry (called a “strategic” in M&A parlance) pays you a visit to talk about acquisition, then it’s pretty clear they have interest in buying the company.  But there are various situations that you might find yourself in that should cause you to remind yourself of this significant distinction.  Let’s explore further.

Continue reading “Are You Selling Your Company or is Someone Buying It?”