What To Do When Approached with an Acquisition Proposal?
Two months ago, I wrote a blog about 7 things to do when you get an acquisition proposal. I’ve received many great comments and additional suggestions from several entrepreneurs sharing their thoughts.
All 7 of them had joined this roller-coaster in the past and were kind enough to share their pieces of advice with all of us.
Here are seven things you should consider along the way:
- Think, What is Your Value?
“Make sure you fully understand the strategy of the buyer in regards to your company — this will help you calculate and provide evidence of what your potential value is to them. Even though they are aware of it, remembering to communicate your value to your champion within the organization (or to the Corp Dev, for example) will help with negotiating and ensuring that you maximize the opportunity provided to you.”
Shai Morag, Co-Founder & CEO @ Ermetic. Former Co-Founder @ SecDo. Acquired by Palo Alto
2. Good Cop or Bad Cop
“Acquisition is a ritual with its own set of rules and you have to play your part. On your end, it may be your first rodeo. On the other side, there are probably professionals who have done this dozens of times. Talk about the stress of being a founder — when there is a possible life-changing event at stake — this is probably one of the highlights.
Get a small cabinet of experienced investors and trusted entrepreneurs who have done this before and work on your script, as an actor would, for every communication with the buyer who is gauging you in various ways. In fact, there will likely be a crisis at some point which will test your capabilities, so be ready for this and play your part accordingly.
Play the part according to the situation; for example, you can be the “good cop”, the deal maker who wants this to happen while the investors are the difficult ones.
Remember that building a company for the long run is always the best strategy, regardless of whether you want to get acquired or want to continue taking the company forward.”
Guy Guzner, Co-Founder & CEO @ Fireglass (acquired by Symantec).
3. Don’t wait for it, prepare for it
“One of the key concerns Founders have when being approached with an M&A discussion is that a potential exit via an acquisition can be a compelling moment and can easily become one of the most important decisions a founder will make in relation to their company’s journey and everyone involved in building it.
It is vital that the founder(s) are prepared to swiftly enter the process that will not only lead to making the right decision, but can also optimize the outcome for everyone involved.
Being prepared to address an acquisition proposal doesn’t mean that you are about to sell your company. Nonetheless, I recommend spending a reasonable amount of time preparing for such an event in order to be ready when it comes.”
Alon Girmonsky, Co-Founder & CEO @ UP9 Inc, and former Founder & CEO @ BlazeMeter (acquired by CA Technologies)
4. Managing the Risk
“One of the key concerns founders have when being approached with an M&A discussion is whether this is all part of an “intelligence collection” effort. Before getting acquired, we were approached multiple times for an M&A discussion. In some cases, things start as a ‘strategic OEM discussion’ which allows the acquiring company to perform a silent, lightweight due diligence on us. In at least two of those cases, we were left with the feeling of being used, (to us it felt we were abused), by reputable companies and industry figures. While the media has seen the occasional reports of this being a practice by some leading enterprises, it is, unfortunately, hard to prove.
In all honesty, I do believe many start-up companies end up being abused. I feel this is less a result of a malicious policy, but rather a matter of “the road to hell is paved with good intentions”.
So, how does a Founder defend/protect against the above concern? At the end of the day, it’s about managing risk. Continuously qualify, and most importantly, find your champion (and know the difference from a coach). Use your champion map, the M&A process, timeline, checkpoints to regulate what information is being shared and access to your team. Leverage your champion to get to the economic buyer early in the process. If you can’t get to the economic buyer, you either don’t have a champion, or the M&A project might not be sanctioned. Moreover, learn to compartmentalize — most start-ups go through more than one M&A discussion before finding the right acquiring partner. It’s not easy to continue running your business while potentially facing a life-changing event. For me personally, I found the solution is working even harder, not leaving time & energy for the ‘what-ifs’.”
Tsahy Shapsa, former Co-Founder & VP Business Development @ CloudLock (acquired by Cisco)
5. Set your expectations and goals
“It’s important to set goals amongst the internal “team” of Co-Founders and Board Members and be ready to walk away from the discussion if these goals are not met. You must be very clear about what you want out of the discussions (if you want to have discussions at all).”
Slavik Markovich, Founder & CEO at Demisto (acquired by Palo Alto Networks)
6. Be aligned with your board
“As part of an acquisition, there are a lot of moving parts — internally and externally. It is highly important to be aligned and have a proper cadence with the board (or a representative of the investors). This serves the interest of stakeholders as well as creates a Center of Excellence to support fast decision-making and negotiation.”
Omer Schneider and Nir Giller, former Co-Founders @ CyberX (a Glilot Capital portfolio company, acquired by Microsoft in July 2020)
7. ‘Exit’ and ‘Acquisition’ are not one in the same for the founder
“As a founder, you should always remember that “Acquisition” and “Exit” are not one in the same. Exit is a term used mainly by investors, since they will not continue developing your company after it’s sold. You as a Founder, on the other hand, will keep pushing the company forward and watch it grow.
An Exit is another milestone in your journey — probably the most important milestone, but there is much more to come. What does it mean? It means you should be convinced that your new home is a good place to continue growing your baby. The most important question will be, “Do I believe that the new company is the right place to take my product to the next level?”
Don’t forget that after the deal is closed, you, together with your team, are moving to a new place. Can this place become a family? if the answer is “yes”, then this is the key to success.”
Boris Vaynberg, GM at Mimecast Israel and former Co-Founder & CEO @ Solebit (acquired by Mimecast)
In the past years, I had the privilege of participating in many M&A deals from both sides of the table, as an entrepreneur and as an investor, so the best advice I can provide is:
Make A Choice, it’s a hard decision. If you have received such an m&a proposal, you are probably doing something right, your company is on the right path, why sell now and not build a real big business? If this is aligned with your thoughts, say ‘no’ quickly, don’t waste time and attention on this. It will only create damage. Only if you have real doubts about building a big business pursue the opportunity.
It’s not easy to prepare yourself and your team for an M&A and even harder to be successful in it… But with the right support along the way and the advice of your investors, I can just say that it’s less terrifying!
For more information, contact this blog’s author: Kobi Samboursky
Co-Founder & Managing Partner at Glilot Capital Partners