Written by Sean Broderick
As entrepreneurs, most of us hope and pray for that “big offer” to sell our companies to another company — or the public. When an acquisition offer does come in, you need to think crazy-hard about walking into that process. These exercises are always painful, always time consuming, and they always take longer than you think they will.
Putting a clock on the deal is one of the tools at your disposal to ensure that the buyer is going to work in good faith and that the investment of your time is warranted.
One of my portfolio companies recently wrapped up a tortuous six month process of NOT getting acquired. It was a promising exit, a reasonable deal price, and a fantastic fit. Each step of the way, the buyer took an inordinate amount of time to move the deal forward. We (the entrpereneur, the seller) were responsive, forthright, and just generally quick about everything, as best we could be. Right up until the deal fell apart, our CEO was certain it was going to happen. It ended in a three minute conversation with an irrational demand from the buyer to lower the price since it had, effectively, been taking too long to close the deal.
We said ‘no’. They said ‘bye’.
In the end, we have no way of knowing whether the acquirer was acting in good faith for all or some or none of the extended negotiations. We do know that we rang up a small fortune in legal fees and travel costs; never mind the extensive and irreplaceable time that the management team invested in the deal over six months.
Acquisitions of tech companies simply are not rocket science (nor even brain surgery). Work with the buyer during the Letter of Intent / Term Sheet process to put dates on the milestones. When will acquirer due diligence start? When will it end? When will the first draft of the long-form documents be ready? How long will it take each of you to cycle on each pass of the documents? These are all estimable activities if both parties are willing to be thoughtful and reasonable.
And here’s the important bit: be willing to walk away! If the dates you agreed to at the beginning are flying past you like F1 race cars, that’s data. You have to be willing to walk away because your time is simply irreplaceable. Unless the acquisition is a life-or-death situation for your company, there are always other fish in the sea.
Originally published at sosv.com on June 24, 2014.
