When you get to that point of an acquisition when there is an offer or a potential offer on the table, what are the things to expect when your company is getting acquired?
Sometimes an offer will catch you by surprise, and come much earlier than you expected. Often it was what you’ve been hoping would happen since you really began putting your original team together.
An exit is an exit, and that’s an achievement to be proud of. It doesn’t matter whether it is for $150 million or $1.5 billion. Either way, supersized or modest, planned or by surprise offer, the big question is what is it really like getting acquired and what should be expected?
Most entrepreneurs have been so wrapped up in getting the business running, fundraising and scaling, they haven’t taken the time out to really talk to others about the experience. Here’s some of what you can expect.
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.
Here is the content that we will cover in this post. Let’s get started.
1) It’s Emotional
One of the things I always come across when interviewing some of the most successful entrepreneurs on the DealMakers podcast is that entrepreneurs should expect the process of getting acquired to be very intense. It’s like your baby moving away to college, winning the lottery, getting divorced, and being under investigation by the FBI, all at the same time.
Get ready to hold on, have the most exciting few months of your life so far, wonder why on earth you got on this ride, be glad it’s all over and then really miss it once it’s all done.
2) Hell in Due Diligence
Be prepared to have your office, files and life ripped apart for at least several weeks, if not months as your acquirer and their teams and lawyers get to work on due diligence.
When getting acquired, be ready for everything to be questioned, every dot to be scrutinized, and all of your accounting and agreements to be evaluated line by line. Not just by one person, but by large teams. Not just those you met and liked and negotiated the deal with, but a lot of others who don’t know you and are just focused on the facts.
The more you can do to organize all of your documents and make sure they are clean in advance the less painful it will be. Have a due diligence room via Dropbox or Google Drive to have things structured and to streamline the process.
Most of this process will be geared towards backing the claims that you made during the pitching process. In this regard, when getting acquired 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.
ACQUISITION MEMORANDUM TEMPLATE
Expect renegotiations throughout the due diligence process. Some buyers will go in looking for as many reasons as they can to justify lowering the price and changing the original terms of their LOI.
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Others may only do it if they find something that isn’t ideal. Expect that to be common. You’ll probably finally settle on a deal the day you’ve really had enough and are just mentally done with the whole transaction.
Keep this in mind in your initial talks, so that you have room to negotiate and still get everything you need and want out of a sale.
4) Random Silence
It’s common for buyers to all of a sudden go silent during the process. For weeks they’ll be harassing you and running you wild. Then nothing. It can be really concerning, but don’t let it make you too desperate. They could just be busy, or it may be a negotiation tactic.
Just hold. Wait it out. Chances are you’ll still get the deal done.
5) Months of Sleepless Nights
If you are really lucky you’ll have a very professional acquirer, with a great process, and it will all be over in a month. A closing that‘s fast is very rare. Sometimes it can take a year if there is a lot of economic or industry turmoil going on.
Get ready for a lot of sleepless nights. If you don’t have an offer yet, make sure you are getting your sleep. The next few months are going to be like you just had newborn twins, and they are going to wake you up every time you think you’ve finally found a few minutes to rest.
Try to take care of yourself during this time as much as possible as lack of sleep according to WebMD can have a serious impact on your health and performance.
Fortunately, with a nice clean exit, you’ll soon have the luxury of plenty of time to relax for a little while.
6) Meetings, Meetings, Meetings
If you are generally not a big fan of meetings and think they are an inefficient waste of time, this may be a frustrating period to get through.
It’s not uncommon to end up having daily meetings during this process. Phone conferences, meetings in your office and flying out to your acquirer’s offices. Meetings with their acquisitions team and lawyers and your lawyers, team, and board.
Delegate as much as possible during this time to make sure you have the headspace to continue to focus on what is most important and to make good decisions.
You’ve dealt with doubt many times on the entrepreneurial journey so far. You’ll get through it. Just stay the course. You overcame it to get started and over many days to get where you are now.
You’ll question what you will do next after you sell your startup if selling was a smart move if this was the right buyer, what will happen to your business baby, team and customers. It’s natural, but keep pressing forward.
8) Internal Disagreements
There’s a chance that not everyone on your side of the table is going to be on board. The timing, price, and buyer may not be ideal for every one of your cofounders and shareholders. Or some just might want to hold out for more. Even if it doesn’t make sense. It happens.
Hopefully, you’ll make the deal happen anyway and have the support you need. It just may take some diplomacy and careful management of all the decision-makers involved to achieve the exit that is in the best interest of the company.
9) Scared Employees
The last thing you need during the acquisition process is dealing with employee churn, losing key talent, or productivity and service grinding to a halt.
However, a quick Google search suggests it is very popular for employees to worry when the startup they work for gets acquired early. They aren’t always sure about what happens to their options, benefits, and incomes. That fear can lead them to make some very poor and rash decisions.
Make sure you are providing answers, clarity, and are managing these expectations well so that the wheels of the machine keep turning.
10) Fewer Yachts, More Travel, More Ideas
Most founders with successful exits don’t end up partying it all away or splurging on yachts and private islands. Taking some time out to travel can be hugely valuable. Not only to recover but to get clarity on what you should do next.
Don’t rush it. Enjoy the luxury of time you have after the mayhem of the closing. Take your time to vet new ideas and have conversations with the right people, before committing to your next project.
One thing I see on entrepreneurs is that they are in it for the problem and not for the money. This makes them start other businesses later. A good example of this is Michael Cammarata as he started building companies at age 13 and hasn‘t stopped ever since.
Remember that before you enter the process of getting acquired, 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.