Running your process
There’s an old adage: “Great businesses are bought, not sold.” This may be true. I wouldn’t know. That said, I believe mediocre businesses are sold, not bought.
A founder once told me to think about the process of selling my company in the same way as the fundraising process. When fundraising, you’re offering the buyer a certain amount of your equity. When selling your company, you’re simply offering all of the equity.
Although the process is similar, how you prepare for the process can be remarkably different. For one, potential acquirers do not advertise themselves as such, like VCs do with investing. You can’t really use LinkedIn Premium to filter by “acquirers for my business” and run down the list.
You should be methodical when thinking about potential acquirers and the internal stakeholders who can help you start a valuable discussion. Take the time to build your list and to focus on the companies with the highest probability of acquiring your startup.
The following process describes one way to compile and prioritize your target list of acquirers.
Industry
Choose the three to five industries directly or indirectly related to what your startup does. If you’re building AI for the construction industry, then you can target construction companies, AI companies, real estate companies, construction equipment suppliers, etc. This helps widen your net, which is an important first step as you begin your outreach.
Strategic fit
Rank each potential acquirer from one to five on a strategic fit for acquisition scale. Develop a thesis for why acquiring your company would make sense for each group of acquirers. Does your team and/or product fit with a strategic initiative or one of their existing products? Is there something unique about your team or customers?This is a great exercise to do with your team. You can take turns playing the naysayer to challenge underlying assumptions and ultimately gain conviction on which firms would have the highest strategic fit.
Speed to move
Given your situation, you may want to evaluate potential acquirers’ perceived “speed to move” on the opportunity to acquire your company. For example, if you only have four months of runway, you’re unlikely to target large firms with various layers of approval that cannot act quickly. You’d be better off focusing on smaller companies where you can speak founder to founder about the strategic benefits of the deal.
Financial situation
Identify as many details as possible on potential acquirers’ current financial situation. If they have recently raised a round of financing, take note. If they are EBITDA positive, take note. If they raised in a down round and have undergone massive layoffs, take note. All of these pieces of information are important when building your target list, as well as when you start discussions.
Previous acquisitions
Acquiring a company is a complicated and time-consuming endeavour. Many acquisitions die during the process. From diligence to negotiations to legal back and forth, there are many moments when deals can evaporate. If you’re looking to take a deal for your startup across the finish line, you’re best to note which acquirers have the highest “propensity to get a deal done.” There’s no better signal than targeting companies that have been through a previous acquisition. They will know from the jump if it’s worth their time to pursue this further.
Existing relationships
This can be a simple “Y/N” column on your sheet. Depending on how active you have been with potential acquirers in the time leading up to your desire to sell, there are ways to significantly accelerate acquisition conversations. Companies that have been customers, partners or competitors are all valuable targets given their knowledge of your team and business. Don’t rule them out.
Adam McIsaac