Acquisitions Suck (here’s how to survive them)

Listen up. If your company is being acquired, or if you’re planning for an acquisition as your exit, you need to know what’s coming. Because a lot of it isn’t pretty.

Acquisition has been a white-hot topic in startup circles lately, and I’m not surprised. A long dormant IPO market is finally beginning to thaw, as several high-profile unicorns race to go public. That in turn has caused a scramble to find the next wave of growth, a gold rush of dead money that’s been sitting in cash reserves at most corporations and private equity firms. Every startup with an idea and some traction is suddenly a takeout target.

Is this a good thing? Absolutely it is. Until it isn’t.

I’ve been through six acquisitions. Some were great, some were disasters, but by the fourth time through I started to see patterns emerge. The massive change that comes with every acquisition produces some of the same decisions and reactions that, when you’re not prepared for them, are wickedly difficult to navigate.

So let me be straight with you about what’s going to happen when your company gets acquired.

“I’m not sure why we’re doing this.”

Last week I got an email from “Rachel,” a CTO at a young Silicon Valley tech startup. Rachel’s company was choosing between a second, ample round of funding and an acquisition, and something was off.

Rachel is not a cofounder. This is her first time as a CTO, but she’s got over 10 years in tech. The company is based around a single innovative piece of technology, the team is mostly developers, and she built both the tech and the team. The startup is around two years old and is pre-revenue, but they had raised enough money on a good enough idea to hire solid coders from the Facebooks and Googles in the Valley.

The startup is well on its way to traction and revenue, but now they’re considering selling out in what would essentially be an acqui-hire. That’s when a larger company buys a smaller company’s team and intellectual property to absorb it into theirs. An acqui-hire can sometimes be seen as a last option, a lifeboat for a struggling but promising young startup.

Rachel did not see the struggle. All she saw was the premature end of a potentially billion-dollar ride.

“This is a fight you’re probably not going to win.”

I want to be careful with my wording here because I owe a lot of my success to the belief that any battle can be won. I love startup primarily because I’m a control freak and startup is the place where I have the most control. But even when I have 100% control — founded/funded/running the startup — I know when I don’t have control.

Big changes — funding, pivots, shutdowns, exits — that’s where control gets usurped.

If Rachel isn’t the one making the decision as to whether or not to be acquired, then that decision is probably happening above her, and it’s possible the decision had already been made by the time she found out the possibility of acquisition was even on the table.

Someone — the rest of the executive team, the board, the investors — has decided it’s time. There could be several reasons for this, maybe finances, maybe fatigue, maybe fear. Startup is an all-or-nothing thing. If someone’s focus slides just a little bit from 100%, it can continue to sink really quickly.

So I’m not saying don’t fight a decision like “should we be acquired,” I’m just saying she should be prepared to lose that fight.

Preparing for an Acquisition

Lawyer up. This is the time to find an attorney, one familiar with acquisitions in your state, and I’d suggest not using the company’s attorney.

We’ll want to forward to that attorney any acquisition documentation that has been given to us, as well as our employment agreement, any documentation concerning equity, options, or ownership, and any modifications or addenda that are likely to come as a precursor to the acquisition agreement.

What’s that last one? It’s optional, but usually a company will try to balance their cap table and clear their liabilities, as well as do a bunch of consolidating to get all their ducks in a row for a nice, smooth deal. If we get one of these mods, it’s likely mandatory that we sign it in order to receive any remuneration for our equity. That doesn’t mean we can’t negotiate.

This is our chance to ask for more equity, if that’s at all possible. Just as important, it’s a chance to add or reinforce protections in our employment agreement. It’s not unheard of to ask for extra severance, just to make it more painful for the new company to take us out. Another smart move is to have a final, on-the-record performance review conducted before the regime change. Better to have it and not need it.

The last preparation step is to put together a two-year plan, not for the org or the product or the team, but for you. This is the last chance you’re going to get to think clearly about the reasons you got into this in the first place. Think of it as a message to your future self.

Now, before we get into all the negativity, let’s make sure we understand that an acquisition can be great. I’m not painting all transactions with the same brush, I’m just saying I’ve seen the same patterns over and over, change is never easy, and I want you to be be prepared, not surprised.

Here we go, in order of potential carnage.

People are going to lose their jobs

Whether the acquisition is a good thing or a bad thing or a growth thing or a survival thing, some people are going to become redundant, others are going to get “unhidden,” and still others are going to resist change at all costs.

So for the right reasons or the wrong reasons or maybe no reason at all, people are going to get let go. Maybe not right away, but at some point it’s almost guaranteed. Others are going to be demoted, either in title or in responsibility, others will be transferred into new positions, and others will be marginalized.

This will feel like the beginning of the end if we go in blind. If it’s us that gets shown the door, it was time and there’s no shame in it. If it’s people we care about, help them find a new job. Don’t quit in solidarity. That’s just stupid. I did that once in my youth. You know who it helped?

I’ll leave that hanging.

Everyone will be doing it wrong

At least one layer of new management is coming into the picture, if not several. There will be misunderstandings. There will be miscommunication. There will be mistakes.

It takes time, open minds, and a lot of things to go right to make any acquisition work. If both companies are established and successful, and the acquisition is a good, growth acquisition, the “doing it wrong” quotient will be magnified and multiplied.

Patience is key here. We need to give the new rules and processes a a chance, we need to allow our rules and processes to be questioned. And worst of all, we need to get from point A to point B using two different paths at the same time.

This won’t last forever. We need to swallow some pride and let arrogance happen, to a point, and let the mistakes and damage prove who is ultimately right and wrong. After all, it could be us in the wrong, and if we’re stubborn, it could take the whole company down.

Culture Crisis

This is the most frequent and the most painful problem but it’s also the easiest to fix. We’ll be adopting a new culture and our culture will be absorbed. People who used to fit in aren’t going to fit in anymore. People with pull won’t have as much pull. Bosses who were nice and funny and cool might get rigid and brusque and shitty.

For the acquired company, it’ll almost always feel like it’s time to grow up. We’re not a startup anymore, we’re not breaking as many rules, we’re not taking as many chances, and it’s not as much fun.

Yeah, I’m not gonna lie to you. It’s time to grow up.

However, the biggest mistake I always see here is when the acquirer tries to “teach” its culture to the new company as quickly as possible, sort of like ripping off a bandage. The false assumption here is that absorbing an acquired company and its culture, of any size, will have no impact on the acquirer’s culture.

The truth is that both cultures are now moot. All that has to be done to fix it is let Company A act like Company A and let Company B act like Company B and let them find common ground. I’m shocked at how rarely this is allowed to happen.

Purists are going to kill me for that strategy, but when I ask them to point to the example where the acquirer’s company culture survives intact, they can’t. Unless they fired everyone.

Your old bosses made some errors in judgment

That’s about the easiest way I can say that. The people at the top of the acquired startup will have missed at least one thing — probably many things — during the acquisition negotiations. Those wrinkles have now caused a chain reaction which they are not prepared to handle.

How will this happen? I mean, it obviously depends on the situation but we’ll know it when we see it. It’ll feel like the end of The Empire Strikes Back where Vader alters the deal and all Lando can do is run away from his own operation without getting strangled.

Why did this happen? Simple. Even with the best intentions, the moment the papers are signed, the clock will begin ticking on expectations that were likely misunderstood or miscommunicated and probably won’t be met. They may not have even been voiced.

This happens every time. I don’t have a specific answer for it, I just wanted you to be aware of it. Let them figure it out. If you’re the boss, figure it out.

“Everyone just quits eventually, right?”

That (punch) line came from a friend of mine who has not only been through a couple acquisitions himself, but was a close witness to probably a hundred others, maybe more, in his line of work.

He’s not lying.

People are going to quit and — man, I don’t want to say “everyone” or “almost everyone,” but I sure laughed when he said it.

Again, change is hard, and walking into an acquisition without setting the right expectations makes every decision seem like the wrong decision, every new process seem like a stupid process, and every missive from new management seem like a personal affront.

Not every acquisition is a win, but not every acquisition is a disaster either. What’s common across all of them is that they’re difficult. They suck. But we’re gonna get through this, and if we do it right, one way or the other we’ll emerge on the other side better off.