One of our companies will be visiting with a potential acquirer about what an acquisition might look like. Even though the company is not for sale and hasn’t hired an investment bank, we’ve encouraged our portfolio company to take the meeting for a number of reasons.
Rarely do you get to choose when you want to sell. Timing is everything when it comes to M&A and you won’t get bought unless: i) the macro environment is right; ii) your acquirer has the financial wherewithal to make an acquisition comfortably; and iii) the acquirer has a big need for your product/team/customers. That’s a lot of boxes to check and rarely do they all align at the same time.
If you say ‘no’, they’ll find someone else to say ‘yes’. Whenever a potential acquirer knocks on your door, if you don’t consider selling they’re not going to wait 1 to 3 years on you to be ready to sell. They’ll approach the next best acquisition target or build out a team themselves. If they do either of those things, consider them gone.
You may be worth a lot more than you think. Remember the story of Cruise: in 2016 when General Motors acquired Cruise Automation for $1bln, Cruise had done their last round 6 months prior, which was a $12.5mm Series A at a valuation of $89mm. I can promise you that at the time of the Series A, no investor thought to themselves, “I bet we sell this thing in 6 months for a billion,” but GM needed the tech, so they paid up. The same may happen to you, but you won’t know what your value is to an acquirer unless you take the meeting.
Warm up your potential acquirers at least a year in advance. Let them get to know you now and keep them updated going forward so that when you’re ready to sell or they’re ready to buy, you’re already on their to-do list. Today’s partnership often becomes tomorrow’s acquisition. Stay close to your potential acquirers and build relationships early — there is nothing wrong with hiring an investment banker to make intros to acquirers that only turn into partnerships today.
The former Head of Strategy and Alliances from Adobe once shared with me a 4 step process to ingratiate yourself with an acquirer. Below is the conversation verbatim. According to him, “there’s an art to it… And its always a campaign rather than a hit and run:
Step 0 — Start a religion around your customers and product so you’re making a ton of noise
Step 1 — Forge partnerships and in-roads into 2 to 5 target companies, not CorpDev but the head of product and CEO
Step 2 — Profits + momentum
Step 3 — Sell
Most companies at this stage that fall into the trap of selling instead of trying to figure out how to go at it alone skip #0, do a little bit of #1 and half ass #2 — while hoping for #3.”
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