Are you at the point where you are thinking about how to get your startup acquired by a larger company?
Getting acquired can be a great exit for startups. Many founders may find it easier and more appealing than going public. So, how do you do it?
You can’t just put your company on eBay or put a for sale sign on your website. Besides, startups are bought, not sold. If you want to attract offers, consider these moves.
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.
1. Date a Lot
Personal connections and relationships are often where acquisition offers spring from.
Even after getting an offer, you aren’t going to want to commit and close until you’ve really got a feel for your new owners either.
So, get out, network, keep in touch by phone, email and social, and in-person when you can. Just keep them updated, so they come up with the idea that they should buy you.
These parties may include:
- Current investors
- Executives of the competition
- CEOs of larger companies in related industries
- Members of acquisition departments in bigger companies
2. Get Noticed
In most cases, an offer or invitation for a meeting comes out of getting noticed and generating interest as a serious contender in your space. Ray Reddy, for example, shared on the DealMakers podcast how he received a cold email from Google which led to the acquisition of his business.
Doing what you do well is the best form of advertising and creating value. However, as with any other part of your business, people don’t know unless you tell them.
Without great marketing, even the best products and services go broke and die off. If you don’t tell potential hires what is so great about your company and culture you can’t expect them just to know.
If you don’t get noticed and tell your customers how awesome your solution is, you won’t have any. The same goes for investors, and acquirers too.
You don’t have to over exaggerate. Just make the most of what you have. Consider this when weighing investments in other branding and marketing efforts. Think about how you can use these same channels to get noticed by potential acquirers.
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3. Solve a Problem
Some of the most artful startups and exits I’ve covered on the DealMakers Podcast are solutions that almost seem custom-built for their eventual buyers. Some serial entrepreneurs are so good at this they are frequently in and out of new businesses in just a couple of years.
- Where are the gaps in your industry?
- What problems are bigger companies in your space not solving yet?
- Where are they struggling?
- Could you do a whole lot better?
Your main advantage when thinking about how to get your startup acquired is that you can often build and launch solutions much faster and more cost-effectively than larger companies. Leverage that.
4. Be a MUST Have
Companies like Google are not going to pay hundreds of millions or billions of dollars for your business just because it may be nice to have. It has to be a must.
- Why must a bigger company in your space buy you out?
- What is so compelling about your company?
- Is it the buzz, magnetism and positioning your brand owns?
- Is it a software solution to an urgent problem?
- Is it a no brainer for adding growth, market share or revenues?
- Will missing out on this moment give the competition a huge edge, or allow you to become too strong of a threat?
5. Be Buyable
Just like being ‘fundable’, startups hoping to be acquired, need to be viable and attractive to acquire too. Just because things are going great, you are grabbing customers and have become a trendy brand doesn’t automatically make you a great candidate to be purchased.
- Are your records organized Dropbox folders so you can prove your value?
- Is your accounting clean and prepared correctly?
- Is your corporate structure ideal for an acquisition or big investment?
- Can it keep running just as well without you involved?
- Is everyone else on board with a sale right now?
- Are you free of negative baggage?
- Is your culture a good fit for another company?
When getting acquired by a larger company storytelling is critical for a transaction to happen and having a solid acquisition memorandum that captures the essence of the business is key. 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.
6. Get Help
If you are really at the stage where it will make sense for another company to buy yours, then an investment banker or advisory firm such as my firm, Panthera Advisors, could be a big help.
They can help you evaluate your business, subtly get the word out that you may be a good acquisition, and startup drumming up competing for offers.
Furthermore, when it comes to negotiating valuation you want to remove yourself and let such advisors drive the negotiation as the bad cops so that you always stay on the positive side.
7. Don’t Be Easy to Take Out or Replicate
Unfortunately, a nice friendly acquisition offer isn’t the only way for a big company to eliminate you as competition or leverage your success.
Bigger companies have more money and larger teams. They could just replicate your success, or try to sue you out of business. It happens more often than it should.
These are risks every entrepreneur needs to be prepared for and protect against. Don’t give away too much of the secret sauce too early. Have a great legal team on standby from the beginning.
Ensure your team is loyal for more than just the size of their paycheck. Protect your intellectual property with trademarks and patents.
8. Demonstrate Your Ability to Integrate
The majority of acquisitions and mergers fail due to integration problems. Bigger companies are becoming more alert to this risk.
What can you do to show integration will be easier with you than buying one of your competitors? It may be the software you use, the communication tools used in daily business, location or willingness to move.
Some really big tech companies have almost passed up on offers because they didn’t think the team would relocate near them. Don’t expect them to ask when you are thinking about how to get your startup acquired.
9. Make the Case
Through the relationships you have built, raise the case for how beneficial your companies would be working together. Josh Hix built relatioships for 3 years before selling his business for $300 million.
Even some trial partnerships could lead to that proof and let them become the ones who think of the merger idea.
10. Work Towards Going Public
Focus on building the best business you can. One which is growing fast and is profitable. Maybe even discuss an IPO.
It’s good to have options. It will often be much cheaper for them to buy you before you go public than afterwards.
If you are looking to get your company acquired and run a successful M&A process, a great acquisition memorandum template like the one below should provide the right guidance so that you build your own and make all the difference.