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Planning for an Acquisition

The key for finding a strong exit as they say is for your company to “get bought not sold”. The best time to sell your company is when the economy is booming and your company is experiencing strong year-over-year growth.

Typically, in these situations, the acquisition interest is strong and revenue multiples are high. However, many entrepreneurs can get cocky about the prospects for their company thinking that the economy and company growth will continue to be robust in the foreseeable future.

Inevitably, the economy weakens or the company’s growth slows down making it a bad time to sell the company.

If your company is looking for an exit, you should strongly consider hiring an investment bank to help you sell the company. They have relationships with potential acquirers in your industry that might be a good fit and they can help you put together an effective pitch for the company.

The involvement of an investment bank will also signal to potential buyers that you will have a well-defined process and multiple interested parties at the table. This is likely to get you a higher sale price that you might not be able to otherwise achieve on your own.

Another strategy to getting bought as opposed to being sold is to build relationships with potential acquirors for your company well before an acquisition. You should build a list of these potential acquirors and share that with your board as they may point out others that you haven’t thought about.

From this list, figure out those that are not directly competitive and who could potentially distribute your solution. Reach out to these companies to see if you can negotiate a distribution relationship or a partnership to get promoted on their platform.

Seek meetings with the CEOs of these companies to make sure that you get visibility on their radar screen. It may take a year or more for these companies to reach the conclusion that they should acquire you but hopefully in the meantime you will have shown to them that your solution is getting good traction in the market.

If you do get an acquisition interest from another company, you need to inform your board of the interest. You need to have a strategic discussion with your board on whether it makes sense for your company to pursue an acquisition as it can be a highly distracting and time-consuming endeavor for you.

You must be careful that you don’t get pushed into pursuing the acquisition opportunity by your VCs who may not understand what an impact it will have on your time.

Any significant acquisition discussion could easily take up a third of your time.

Hiring an investment bank

If you have an acquisition offer or you are considering the sale of your company, it is generally a good idea to hire an investment bank to help shop your company and get the best sale price for your company.

They can help identify potential acquirors and get multiple parties to the table by leveraging their existing relationships with leading companies in your space. They can also help in determining the appropriate valuation range for your company as well as help negotiate the sale of your company.

You should seek your board’s advice in identifying the appropriate investment banks you should interview to help you sell your company. Ask other startup CEOs that have gone through an M&A process.

In selecting your bank, look for banks that have strong expertise in the industry sector that you belong in. Make sure that they typically manage sales in the valuation range appropriate for your company so you can get the attention that your company deserves.

Ask them who would be appropriate buyers for your company and what kind of contacts they have at these companies. Check references to make sure that their previous clients have been happy with the work they have done for them and they have the industry contacts that they claim to have.

Selling your company is not easy especially for a founder who is invested in the company for the long term. However, as a founder you have a fiduciary responsibility to get the best possible outcome for investors and employees.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YS.)