The six-step playbook to pursuing M&A opportunities as a founder
Robert McDaniel
Michael Dayt
Mary Butler
Richard Farmer
Zech Yap
Emily Snowdon (née Hodgins)
+14
"By a pure numbers point of view, you’re going to sell your company at some point."
Just a reminder: It is your job as a founder to pursue M&A opportunities when the time is right as a founder.
It shouldn’t be a taboo topic with founders and investors. By a pure numbers point of view, you’re going to sell your company at some point. Laying the groundwork can have a massive impact on the multiple you receive. It can be the difference between a panicked fire-sale acquihire when you’re out of cash or a respectable multiple that makes you and your team rich. Here’s a six-step playbook:
1. Network your way to the appropriate people at potential acquirers. Like VCs, these folks are paid to take meetings. Try to build a solid rapport. Bankers do way better when founders have a pre-existing relationship with buyers.
2. Don’t be afraid of, or demoralized by rejection. Your company may just be too small (i.e. the consensus is that Google doesn’t roll out of bed for sub-$1B exits). Or the acquirer’s goals might be moving in a different direction under the surface. It pays to reach out.
3. Keep in touch with these contacts. If you get a great write-up in a major publication, forward it to them. Invite them to any events you host. A power move is sending them a version of your investor update with the sensitive info redacted. Peripheral awareness pays.
4. Learn how they think about M&A. Some companies just calculate in terms of build vs. buy. Others are opportunistic, looking for short or long-term synergies. Sometimes, a startup just seems like an existential threat that must be acquired.
5. Get a sense for how each companies values startups. For some, it’s art - the founders, tech, hype, customers, and other intangibles drive valuation. For others, it’s science: discounted cash flow, comps, and industry multiples. Build out a price floor and ceiling.
6. After laying groundwork for 1-2 years, you’ll be in the position to reach out to these folks if you decide to sell. More importantly, because you’ve kept multiple buyers up to speed, you can create a bidding war, and be a bit pushy; “We need an answer this week.”
And a few points about negotiation and pricing:
Craft a compelling story about your business and why it has the potential to be transformative (for the acquirer). You’re no longer pitching a vision about your plucky startup beating the odds, now you're pitching how 1+1 = 3 in the context of this *particular* company. 🚀
Don’t try to position your company as a major threat to the acquirer to justify a high multiple. Informed confidence is attractive and blustery cockiness will make it hard for the buyer to see you integrating well into the team. 😕
Have conviction around what you believe the price range to be. Know the range that your co-founders, and investors are prepared to sell at. Even if a wide range, don’t start a process if you don’t have a target. 🦈
Recruit help. Lean heavily on experienced investors and advisors to keep the acquirer’s corporate development accountable for early promises. Bankers are not a bad idea. This is a highest-stakes, nerve-wracking negotiation. For a good banker or advisor, it’s Tuesday. 🆘
Notes
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