Season 2 - Episode 2: The Process of Being Acquired
Everyone has heard of companies being acquired, but do you know the actual steps of the acquisition process?
In part two of a four part series, Dave and Chris will discuss their actual experiences of being acquired. From initial communications with potential buyers, teasing out a letter of intent, due diligence, to closing the deal, we'll discuss it all.
Background Story
It seemed like it came out of nowhere. We had been operating our business for years, fantasizing about how some day someone would come along and buy us. But we didn’t give it too much thought - it felt dangerous to focus on he hypothetical. Suddenly though, it became real; we were getting multiple calls and emails a week from different companies - private equity, strategic competitors, and more - who started throwing some pretty serious numbers at us. Is this actually happening?
For a while we chalked it up to our competitors trying to mess with us - we didn’t take it seriously. That is until we received an email from an acronym we recognized - TCV - the company that owned one of our biggest competitors.
Outline
Stepping on Toes (and Offering Ice): To get their attention, you need to step on their toes. Don’t be a dick, but definitely make them uncomfortable.
Teasing Out the Letter of Intent (LOI) : You need them to throw out some numbers first. Maintain your strong rapport but be sure to communicate urgency - in our case, that was letting them know they weren’t the only game in town.
Due Diligence Sucks: So you’ve signed a letter that says you’re going to get a lot of money. Big whoop. Now comes the brutal part - the company that bought you is going to find every skeleton in your closet.
Busted Myths
Myth: You need to grow at all costs, being as ruthless and brutal as possible in the market.
Nope. Yes, you don’t need to be nice to them, but you need to respect them. If you piss off every competitor with shady behavior, they won’t trust or be interested in buying you later. Plus, customers hate mud-flinging.
Myth: Selling your company is like selling your car.
Sure, they’ll come on the lot, kick the tires, but when you sign on that dotted line, you’re basically agreeing to show them everything. This involves removing every single nut and bolt holding that bad boy together and showing them the good, bad, and ugly of your business.
Learnings
Don’t be a dick in the market. Compete but with a moral compass.
You need to develop backchannels (or indirect contact) with future suitors, including competitors, so that they know they can trust you later. It’s the long game of a sales process.
This will take longer than you think. Start building these relationships years before you need them.
You need them to put the number out there. To do this, you’ll have to meet them halfway and show them some of your sensitive IP / data.
Don’t be afraid to walk away. Your BATNA (Best Alternative to a Negotiated Agreement) is to either find another suitor or just keep running your business.
When you get to due diligence, understand that you will be insanely busy. They will go through everything.
Shield your staff from this knowledge, because rumors can negatively affect the rapport you’ve built and even the value of the purchase.
Summary
Don’t be a dick.
Build back channels.
Tease that LOI out carefully.
Selling your business is not like selling your car.
Due diligence sucks - but it’s worth it.
Data And References
M&A Rumors About Unlisted Firms
by Alexander Groh
Harvard Law School Forum on Corporate Governance, August 2021
https://corpgov.law.harvard.edu/2021/08/31/ma-rumors-about-unlisted-firms/