7 Things To Expect When Getting Acquired

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I probably get 1–2 requests per week from fellow entrepreneurs about what it was like to go through the acquisition process for my last startup, Reesio (we were acquired by News Corp’s Realtor.com in 2015).

There are a lot of false positives and points of confusion about what things really mean and don’t mean once you’re fairly confident that an acquisition will happen. I’ve boiled down the key things to expect into 7 areas. Of course, there are additional nuances within each of these, and lesser issues that I chose not to cover. But here are the 7 biggies you should definitely expect:

1. Nothing is going to for sure happen until you get a Letter of Intent / Term Sheet. Many potential acquirers enjoying kicking the tires and seeing what’s out there, meeting with promising companies, etc. It’s easy to get caught up in the hype and think that a meeting or two with Corp Dev or a senior executive at a company means that the acquisition will for sure go through. Putting together an LOI/Term Sheet is generally a lot of stress for a company, so once you get one, you can be 99.9% assured that they’re serious about acquiring you. Until then, it’s only a possibility.
2. Negotiation of the term sheet depends on how much leverage you have and how many potential other acquirers are interested in you. Most acquirers require a “no-shop provision” as part of the LOI, where you can’t shop the deal to other potential acquirers. However, before that kicks in, you generally can get a “go-shop provision”, where you are allowed to go to other acquirers and let them know that you have an offer on the table. In fact, most shareholders will require you to shop the deal prior to signing the LOI, and it can even be considered a breach of fiduciary responsibility to not shop the deal (this depends on several circumstances). After shopping the deal, negotiation leverage depends on a few factors. If you have either A) a lot of money in the bank, B) are growing super fast, C) have other potential acquirers interested, or D) some or all of the above, you’ll have more leverage to negotiate the LOI, which is why shopping it is important. If you have none of these going in your favor, your leverage is almost zero.
3. Once you’ve signed a term sheet, get the deal closed in 60 days. A 60 day close period is pretty standard with most LOI’s, but if you aren’t offered that, negotiate on this and make sure that everyone is on the same page. Time kills all deals, and the longer that due diligence drags out, the more likely it will fall apart.
4. Speaking of due diligence, be prepared to share everything about your company. Every contract, every payroll form, every bank statement, etc. Your best bet is to subscribe to a data room like Onehub, which allows you to watermark confidential documents, track who views what, etc., and just literally dump all of your files into there for the acquirer to pick and choose what they want to view. You’ll still get email requests for certain things, but it will drastically cut down on it, and you’ll also CYA in case the acquirer comes back later and says that you didn’t share something.
5. Due diligence itself probably only takes about 30 days, but negotiating the Purchase Agreement will take up the final 30 days. So the acquirer is satisfied after a month of due diligence that you are who you say that you are. Now you’re done, right? Nope. Now comes the Purchase Agreement, which will be the formal document that you and the acquirer will sign to legally make the deal binding. This will be a very long document (30–40 pages) outlining pretty much every last detail and accounting for every possible scenario. Expect to spend this entire last month on the phone with your legal team and the acquirer’s, negotiating on terms, getting clarification on certain points, etc. If you don’t have a great M&A attorney at this point, get one. Fast.
6. Both sides sign the Purchase Agreement. While this may sound like the easiest step, it’s far from it, especially if you have a boatload of investors/shareholders that all need to sign off on it. You’re going to have to chase everyone down to get their signatures. From an administrative standpoint, be sure you’re using a tool like DocuSign to make this process smoother. But it’s still going to be a pain. When going through the Reesio acquisition, I was literally trying to call Europe and hunt down investors that were vacationing on remote islands with no internet access in order to get everyone to sign on time. The fewer shareholders you have, the easier this will be.
7. Turn over the keys to the company and go to work at your acquirer. This may actually be the hardest step. When Reesio was acquired by Realtor.com in 2015, I went through a bit of a postpartum depression the first few days after we were acquired, because I felt like I had lost my baby. It’s not easy to see everything you’ve built now in the hands and control of someone else. It can definitely lead to sadness, anxiety, etc. But you get over it pretty quickly once you see the money hit your bank account :)