For many startup founders, being acquired by a larger company is the ultimate goal. However, completing an acquisition can be a daunting experience for any founder, business owner or executive. The process can be complex and overwhelming, with many important decisions to make along the way so you can thoroughly prepare your startup for acquisition.
Therefore, proper preparation and a clear understanding of what to expect can help founders succeed in this process. From assessing the value of the business to identifying potential acquirers and negotiating the deal, these are just some of the steps you can take to prepare your startup for acquisition .
Ben Wong, a veteran investment banker with global investment bank Moelis Australia, has been involved in more than 50 global acquisitions. He says the questions that are most obvious at the start of the process can also be the most crucial.
“First, you need to understand your own motivations, as well as those of your shareholders. Let’s say you’re a tech company, you’ve built a product and a business, you have venture capital funding, angel investors, etc. But what do you want – what do the founders and management want? Do you want to sell and take the money? But that probably won’t happen, because when most acquisitions happen, the buyers want the founders to stay, at least for a few years,” Wong told The Recursive.
Motivation is definitely one of the key aspects, agrees Croatian entrepreneur and head of developer experience at Infobip, Ivan Burazin.
“Typically, the motivation is financial benefit to the seller. Of course, there are other motivations too – sometimes it’s done to expand a vision, in the sense that you can’t take the next step as a standalone company,” Burazin, whose Shift lecture took place. acquired by the Croatian technological unicorn Infobip in 2021, tells The Recursive.
Co-founder dynamics are also very important when there is an acquisition proposal, Wong continues.
“For example, what happens if one co-founder is 35 and hungry, and the other is 60 and at that point just wants to sell the company? It changes the way you trade from the start. Then VCs and angel investors add another level of complexity: They’re not involved in the business, but are they willing to sell? Will they help you sell? I sold a company two years ago where the shareholders didn’t want to sell, but the lead founder did. So, as a founder, you may find yourself in a tricky situation here – since most tech companies are risky – if you don’t take the money now, what happens if, say, Google enters as a competitor, what do you do then? ? ”Wong explains.
How to Determine Your Value (and Price)
So, the first step to prepare your startup for acquisition would be to get everyone involved. After that, when everyone agrees on the acquisition, the next question for the founders is to determine what the buyers want from the transaction.
“You need to think about what you want in the sale: cash or shares? Then you need to prepare yourself and know who their party is. What value do you bring to them that will help you think about price? Do they want you because of their code, your customers or your brand? So you definitely need to know what you’re bringing to them,” Wong tells The Recursive.
Then there is also competition for potential buyers, and for Wong, this is also a very important aspect of any acquisition transaction.
“The next thing you do is figure out who else would want to buy you? Because then you need competition – for example, there’s Google, Apple and everyone else who might want to buy your startup. After that, get ready: prepare your data room and prepare all your documents. And one more very important thing: know your financial model, your financial income and anything that might come up during due diligence,” says Wong.
However, when it comes to due diligence, for Burazin, it is also a two-way street: you also need to know as much as you can about the buyer.
“The buyer must do due diligence as much as the seller. Does the buyer have a history of M&A, does it have a history of follow-up after a letter of intent, does it have a good track record of post-acquisition integrations, and so on? straight away,” he told The Recursive.
This is also where the big challenges come in and, according to Burazin, founders need to focus on several of them.
“Setting valuations is probably the first challenge. Next comes voting rights (if similar in size), and the third challenge would be cultural fit,” Burazin points out.
What happens after the acquisition?
Then there is also the post-acquisition integration process. What is happening here? According to Igor Madzov, an angel investor based in North Macedonia, several scenarios can happen next.
“There are several scenarios for how the company will survive in the new circumstances: the first is “vesting” which occurs when the company takes interest in the team and continues to thrive in the new venture. The second scenario is where the buyer is interested in the product and wants to develop it or integrate it into their offering. And the third is when the deal is made to buy users and market positions,” Madzov told The Recursive.
However, the value of employees and the team is often as crucial as the role of the founders themselves, Wong adds.
“One of the reasons that is of great importance to founders is people. What happens to them? Do they stay at work? Are they cut? Does the company just take the technology and the business, and that’s it? I know founders who didn’t sell the company just to protect the employees – and they will continue, they will continue to make money, they will continue to get funding and they will continue to build. Wong concludes.