5 ms·

What Every Founder Should Know When an Acquirer Comes Calling

47 points by coloneltcb 13y ago

luxpir 13y ago
Perhaps ridiculous to even consider this at the early stage we're at, but that was full of useful information to bear in mind to avoid missing an opportunity. Particularly appreciate being made aware of the preparation that can be done in advance.
tptacek 13y ago
My bet: the most important bit of advice you could give any startup about managing acquisition offers is: assume the offer is going to fall through. Funding negotiations are something many startups have a lot of experience with, and they're notorious for unraveling late in the game. Acquisition talks are much worse: they take longer and are more likely to fall apart. An acquisition negotiation that dies late in the game is especially demoralizing. When you're getting a company funded, you're talking to lots of different investors, and may even have multiple paths to fund the company (institutional VC, a convertible debt round, &c). But failing to close an acquisition feels more like a verdict about the company and its prospects. For one thing, you have fewer potential acquirers than investors. For another, to get even a little bit engaged in an acquisition talk, you have to get yourself in the mindset of a near-future exit. Things to watch out for: * The (usually inadvertent) management shift from sales to "business development", where you start bouncing around the industry talking to different people about acquisitions * Acquirer optionality --- the article correctly points out that the acquiring firm isn't necessarily prioritizing lower valuation about all else, but remember that deals are usually instigated and closed by specific people in the firm, whose careers are most definitely going to be evaluated by the perceived success of the purchase --- long story short, the bizdev guy at your potential acquirer is likely to keep you on the hook longer than you'll be comfortable. * Infecting your team. I'm actually not sure it's all that standard for acquirers to do rolling team interviews. I've been a part of a couple (and a party to a couple more) now and haven't been formally interviewed despite very senior roles. I'd be wary of letting an acquirer "interview" anyone on my team before I was reasonable sure the deal will close. The other thing to know about acquisitions is that they are fucking expensive. If you haven't done one, you probably have no idea. You are going to get very, very friendly with corporate attorneys, and if you've got counsel now reviewing sales contracts and whatnot, be aware that the attorneys that manage your warrants and reps and stuff are way way more expensive than those contract review people are. The good news about legal expense and team risk is that they can be used as deal qualifiers: if an acquirer balks about committing to something before interviewing the team, or about legal costs, the deal might not be there. If it isn't, it's important that you know that!
- hornbaker 13y ago
  Absolutely spot-on. ALWAYS assume it's going to fall through, and put your BUSINESS first, not the discussions. As long as you keep the business growing, the acquirer will not walk away (assuming they're serious in the first place).
- larrys 13y ago
  "is likely to keep you on the hook longer than you'll be comfortable." Not doing this type of negotiation but doing plenty of other types of negotiation one thing I practically always do is set a definite time period to something that I'm selling or trying to buy. There are no open ended offers. The only time I've deviated from that is when the offer is so obviously juicy (as it is sometimes with the things that I sell) that I can't draw a line in the sand for fear of scuttling the big payoff. The cliche "time kills all deals" is true. "is that they are fucking expensive." Most importantly (and specifically after reading some of what you just said) know the downside risk of going down some road where there is no guarantee of outcome to your benefit. Don't gamble (another cliche) more than you can lose.
dkural 13y ago
I strongly disagree with some of this advice. No detailed term sheet, no access. No one gets to interview team members before "It’s at this point the buyer should come to you with a pretty cut-and-dried view of exactly how they’re looking at the transaction."

47 points by coloneltcb 13y ago

Perhaps ridiculous to even consider this at the early stage we're at, but that was full of useful information to bear in mind to avoid missing an opportunity. Particularly appreciate being made aware of the preparation that can be done in advance.

tptacek 13y ago

My bet: the most important bit of advice you could give any startup about managing acquisition offers is: assume the offer is going to fall through. Funding negotiations are something many startups have a lot of experience with, and they're notorious for unraveling late in the game. Acquisition talks are much worse: they take longer and are more likely to fall apart. An acquisition negotiation that dies late in the game is especially demoralizing. When you're getting a company funded, you're talking to lots of different investors, and may even have multiple paths to fund the company (institutional VC, a convertible debt round, &c). But failing to close an acquisition feels more like a verdict about the company and its prospects. For one thing, you have fewer potential acquirers than investors. For another, to get even a little bit engaged in an acquisition talk, you have to get yourself in the mindset of a near-future exit. Things to watch out for: * The (usually inadvertent) management shift from sales to "business development", where you start bouncing around the industry talking to different people about acquisitions * Acquirer optionality --- the article correctly points out that the acquiring firm isn't necessarily prioritizing lower valuation about all else, but remember that deals are usually instigated and closed by specific people in the firm, whose careers are most definitely going to be evaluated by the perceived success of the purchase --- long story short, the bizdev guy at your potential acquirer is likely to keep you on the hook longer than you'll be comfortable. * Infecting your team. I'm actually not sure it's all that standard for acquirers to do rolling team interviews. I've been a part of a couple (and a party to a couple more) now and haven't been formally interviewed despite very senior roles. I'd be wary of letting an acquirer "interview" anyone on my team before I was reasonable sure the deal will close. The other thing to know about acquisitions is that they are fucking expensive. If you haven't done one, you probably have no idea. You are going to get very, very friendly with corporate attorneys, and if you've got counsel now reviewing sales contracts and whatnot, be aware that the attorneys that manage your warrants and reps and stuff are way way more expensive than those contract review people are. The good news about legal expense and team risk is that they can be used as deal qualifiers: if an acquirer balks about committing to something before interviewing the team, or about legal costs, the deal might not be there. If it isn't, it's important that you know that!

hornbaker 13y ago
Absolutely spot-on. ALWAYS assume it's going to fall through, and put your BUSINESS first, not the discussions. As long as you keep the business growing, the acquirer will not walk away (assuming they're serious in the first place).
larrys 13y ago
"is likely to keep you on the hook longer than you'll be comfortable." Not doing this type of negotiation but doing plenty of other types of negotiation one thing I practically always do is set a definite time period to something that I'm selling or trying to buy. There are no open ended offers. The only time I've deviated from that is when the offer is so obviously juicy (as it is sometimes with the things that I sell) that I can't draw a line in the sand for fear of scuttling the big payoff. The cliche "time kills all deals" is true. "is that they are fucking expensive." Most importantly (and specifically after reading some of what you just said) know the downside risk of going down some road where there is no guarantee of outcome to your benefit. Don't gamble (another cliche) more than you can lose.

dkural 13y ago

I strongly disagree with some of this advice. No detailed term sheet, no access. No one gets to interview team members before "It’s at this point the buyer should come to you with a pretty cut-and-dried view of exactly how they’re looking at the transaction."