How to build a target list of acquirers for your startup? Building a target list is an important step in preparing for an exit for your startup.
As I discuss in my recent book, Selling Your Startup, this is true whether it may be years out on your timeline, you already have inbound interest, or you are in a crunch.
Continue reading to learn how to build a target list of acquirers for your startup.
Remember that mastering the storytelling side and how you are positioning your business is critical when it comes to engaging and speeding up the process. This is done via your acquisition memorandum. This is super important to reach a successful acquisition. For a winning acquisition, memorandum template take a look at the one I recently covered (see it here) or unlock the acquisition memorandum template directly below.
What is a target list?
A target list is a list of companies, individuals, or parties you believe would be interested in acquiring your startup.
Your merger and acquisition (M&A) advisor can discreetly use a target list to approach and assess potential acquirers with interest.
The benefits of building a target list
There are several reasons why building a target list early on is beneficial.
It saves you time
Running the day-to-day operations of your startup can be demanding, and it will get worse once you start the merger and acquisition process.
You want to avoid wasting precious time talking to the wrong potential acquirers, especially giving sensitive information when they turn out to be the wrong fit.
Instead, you should limit conversations to a handful of acquirers and ensure you’re speaking to the right ones.
You can negotiate better terms
Customizing your startup for a target list allows you to negotiate favorable terms. This can include how long they expect founders to stay on and how they pay.
They will probably value your company and assets more highly than others.
The best outcome for your team
If you care about your employees, you’ll want an acquirer who will take care of them, help them achieve their goals, and give them the best outcome.
This could include financial incentives in the immediate term and important positions in the medium term.
You would also ensure compensation packages and career paths or options that provide long-term security and opportunity.
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Finding someone with the same vision
Building a target list of acquirers allows you to target those who are the best fit for your startup and have the same vision and mission as you.
An acquirer with these attributes will take care of the products you’ve created and make the most of them. While helping maximize its potential.
Efficiency in the mergers and acquisitions process
You’ll have a more streamlined and efficient process throughout if you have a built target list.
You won’t have to distract your teams’ attention and waste time generating ineffective content or rushing through unnecessary initiatives.
Who should be included on your target list?
Your target list should be extensive, with as many potential acquirers as possible included. In general, it will be worthwhile to consider including the following:
- Your main competitors
- Your customers
- Businesses you already partner with
- Your suppliers
- Others in your supply chain
- Businesses that are similar to your startup
- Individual investors with a high net worth
- Private equity firms
Consider what parties may benefit from strategic advantages (cross-selling opportunities or economies of scale). This step is critical when considering how to build a target list of acquirers for your startup.
Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
How to identify acquirers for your target list
You need to understand your startup’s needs when you build your target list. You will know the criteria and traits you’re looking for in a potential acquirer using this information.
Consider the following factors when determining who to add to your target list:
- The reason: Think about which acquirers match your priorities and goals and whether they are financially or mission-focused.
- Is the acquirer the right fit for your startup: What is their management style, reputation for treating acquired companies and customers? What is their thesis on this investment?
- Think about culture fit: Acquirers on your target list need to fit in with your startup’s culture. This will allow successful integration. After all, the number one reason these transactions fail is integration. If it fails, a lot of your proceeds can be on the line.
What sources can you use to build your target list?
Your M&A advisor can use various market database tools to help you build a target list of potential acquirers.
Advisors can use software tools to generate a list of competitors in your industry based on geographic and financial factors they specify.
Other platforms and tools, such as Intralinks, Dealnexus, LinkedIn, and Crunchbase may play a role in identifying and initiating contact with potential acquirers.
Building personal relationships with potential acquirers will give you insight into the company and the individuals you’ll be dealing with.
These connections will also help the deal close smoothly and honestly and act as a buffer should there be any rough patches.
You can learn a lot about an acquirer if they are your customer or one of your vendors.
You will get the chance to see how they do business, whether they live up to their promises, and how competent they are.
Furthermore, market intelligence and industry knowledge are often helpful in locating other parties that may be interested in buying your startup.
The more acquirers on the list, the better. So, take the time to understand how to build a target list of acquirers for your startup.
As a rule of thumb, the longer your target list, the more likely you are to locate an acquirer who can execute an acquisition effectively.
You want to be focused, but have options, and the ability to create a bidding process.
How to identify targets in an acquisition
Another way to look at this is by putting yourself in the shoes of potential acquirers.
The job of constructing a target list of startups to acquire for merger and acquisition buyers starts with identifying information of the target:
- What kind of startup do you want to acquire? Is there a product extension? Is there a new product or service on the horizon? Are you looking for a way to break into new markets? Is there a rival?
- What is the expected revenue range? What revenue level is required for the target to be worthwhile? How much is too much, and how much is too little?
- What are your minimum earnings requirements? Is it necessary for an acquisition to be financially beneficial to your company’s earnings per share?
- What price would you be willing to pay? Are you ready to pay a higher price, or are you simply a bargain shopper?
- What do you want the new owners/managers to do after the acquisition is finalized? Do you need or want the target’s upper management to stay on board and run the startup? Or would you prefer to bring in your own staff to take their place?
- Where should the acquisition be located? Is it necessary to you where the target is located? Do you plan to keep the acquisition at its current location or integrate it into your existing operations?
There is no correct response to any of these questions, as the correct answer is whatever is the best fit for the specific needs and goals as an acquirer.
It’s a great starting point when learning how to build a target list of acquirers for your startup.
How to make contact with interested acquirers
Once you are done building your target list, you will need to get in contact with them. The following points are examples of how you can make contact with the interested parties:
Referrals and introductions
This is one of the most practical methods to meet people, especially if you’re looking for credibility and trust and want to be taken seriously.
Depending on the company’s size, it will be beneficial to contact an executive who is higher up in ranking or the founders.
If you are in contact with someone acquainted with one of these people, you can ask them to refer you and introduce you.
To make direct connections, you need to get out there and start personal networking. One way of networking is by attending organized and professional networking events.
If no events are happening in your area, you can host an event and invite the right people. Another option is casual networking.
Research where potential acquirers hang out when they’re not in the office, show up and start a conversation.
Cold calling and emails
Cold calling is not a thing of the past! Maybe it’s challenging to reach someone via a cold call through a phone, but an email always gets delivered.
Emails are currently the preferred communication method for professionals, and if they can work for fundraising initiatives, it can work for a merger and acquisition.
Besides emails, you can also reach out to acquirers on social media, such as Twitter and LinkedIn.
By getting noticed, you can use your visibility to get an acquirer’s attention and use that to motivate an interest in an acquisition.
If you’re unsure how to draw attention, you can use the press to write about your startup and anything unique about your products or services.
You can also get reports and articles published about industry-related topics and motivate others to take action in acquiring your startup.
If you’re ready, file for an IPO or begin your next round of funding. This often leads to discussions about acquiring you.
Here’s another of the starting points when figuring out how to build a target list of acquirers for your startup.
Reverse the order of your target list
Consider reversing the order of your target list and work with the last potential acquirer first. Make a list of your least desirable acquirers and put them on your shortlist which will provide you with two key benefits.
Firstly, you can improve your pitch by listening and learning from them. You’ll also get to enhance your presentation and answers by the time you get to the top of the list.
Secondly, you can get a referral and introduction to other acquirers on your target list or even a meeting with someone who is not on your list and may have been overlooked.
Use a merger and acquisition advisor
An M&A advisor can assist you with the acquisition process, pinpointing active buyers, and all the while giving you the ability to negotiate an exit package for yourself that’s fair and appealing.
An M&A advisor is highly experienced in mergers and acquisitions, has relationships with other professionals.
These may include tax attorneys, insurance agents, accountants, wealth managers, and business sales coaches, investors, and executives.
Working with an advisor is similar to working with a real estate agent selling your house. It has several advantages, especially if you are a first-time seller.
An M&A advisor can find the right acquirer while maintaining startup confidentiality, which you won’t get if you advertise your startup on the internet.
Experienced advisors also bring a wealth of information about how to advertise your startup and resources, such as a personal network, to assist you in finding the right buyer quickly.
When creating a list of potential acquirers for your startup, you would want to begin by identifying the different types of investors. Check out this video I have put together where I explain how to identify them.
Assessing early interest
If you have early interest from potential acquirers, you will need to get in contact with them.
One way is through inbound calls. If you have an exit in mind and are doing everything right with your startup, acquirers will approach you.
If the acquirer is serious about buying your startup, they will call you. In many cases, multiple offers will come through if you turn down the first offer that comes your way.
However, this will come down to your position’s strength and legal responsibilities to others.
If there is no interest in inbound calls and emails, look for responses to your conversations, PR, marketing, and any pitching or fundraising you might be doing.
Always look for opportunities in casual conversation with others, as there could be something if you follow up with them later.
Most importantly, you want to ensure the conversations you’re having are with the right people and that you’re attracting the right buyers.
You want to ensure that these people are really interested in an acquisition and not distracting you. That they actually have the ability to complete a deal too.
Executing the follow-up
If you’ve generated interest from potential acquirers, you need to follow up. Treat it as any other sale and act on it with care. It will take time, and you may need to follow up more than once to get a closed deal.
A follow-up might not only be about a phone call or email. Every so often and may include you needing to directly or indirectly help the acquirer with some aspects of the sales process.
It will be essential for you to understand the acquirer’s process from their end and help them through the various phases patiently. It can take a while to build rapport, trust, and a real relationship.
Learning how to build a target list of acquirers for your startup will save you time when you are ready for your exit.
You’ll have the best outcome for your startup and team, and you can negotiate a deal that will benefit everyone involved.
Think about the type of acquirer that’s the right fit for your startup and find ways to connect with them.
Don’t be afraid to network and make new contacts. Use an M&A advisor to help you make connections if you don’t have any.
They have a wealth of knowledge that will benefit you and the entire sales process. As well as for positioning your startup in advance.
Lastly, don’t leave any follow-ups with potential acquirers for too long. Strike while the iron is hot.
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