Now What? How to Handle an Acquisition Offer for Your Company

As featured in Fortune Term Sheet.

As a growth stage entrepreneur committed to going long and building a big company, your focus should always be on moving forward, looking down the field and thinking long term. That said, most successful companies ultimately get acquired. As an entrepreneur with investors, there’s no shame in selling your company and making a return for you, your employees and your VCs. Fact is, even if you’re ardently focused on remaining independent, you can’t control when an unexpected suitor may come calling. Although you ultimately may opt to remain independent, you need to take such advances seriously. Here are five key steps to take when that offer comes.

Have a Full Dance Card. Since you don’t know when a potential suitor may come forward, you need to expect that it may happen at any time. As soon as a serious offer comes in, you need to have a few others you can alert to the possibility you may sell. Without multiple suitors, you’ll never get an optimal price for your company. You won’t be able to gin up sufficient additional interest if you reach out to others for the first time after receiving a serious offer. Make it a priority to keep relationships with your potential suitors as you scale.

Know the People Who May Acquire You. You’ll never be acquired by a company; rather you’ll be acquired by a person or group of people at a company. As you navigate the landscape of potential acquirers to build your dance card, make sure you find the right people – folks with authority, wherewithal and gumption. At many possible suitors, the right person will be within a business unit and not necessarily a corporate development executive. Spend the time to get to know these folks and assess who is a true contender to acquire you someday.

Approach Your Board With a Plan. Should you receive a serious offer, you want to manage the process rather than letting it manage you. To ensure this, make sure you think through the alternatives carefully and approach your board with a clear recommendation. If you ask your board for advice without having developed and articulated your own point of view, you may end up disappointed with the outcome.

Keep the Group Involved Small. As a growth stage entrepreneur, you’ve undoubtedly worked hard to develop a vision and culture focused on creating long term value. You need to do everything you can to preserve this focus. The likelihood that an M&A conversation will consummate is very low, but news of a possible acquisition can be very distracting to your employees. To the extent possible, keep the group of your employees involved in the acquisition conversation as small as possible. Best case, if you don’t end up selling, your company will not miss a beat.

Don’t Be in a Hurry. As an entrepreneur, you’ve likely been rewarded for decisiveness – picking a path and moving forward expeditiously helps keep you out in front. This approach will hurt you in an M&A context however. Acquisition negotiations are complex and the potential buyer usually has a lot more experience than you getting deals done. Good advisors will help you approach the process methodically and ultimately get to the best outcome.

Although there are plenty of quantitative factors to consider in an acquisition context, the decision to sell your company is deeply personal as well. Your investors, employees and partners have entrusted you with their capital, time and reputation. There’s a lot of responsibility riding on your shoulders. Following the steps above will help you think clearly and make right decision.

2 Responses to Now What? How to Handle an Acquisition Offer for Your Company

  1. Glenn,

    Good post. I once worked for an entrepreneur who immediately ran right into the arms of the potential acquirer, thereby killing his bargaining power. In the end, the deal didn’t happen.

    On a similar note, it would be great to see a post about what startup entrepreneurs need to do after they raise a large round.

    cheers, Mark

    • Thanks Mark, glad you found the post useful. I like your idea of focusing on how to manage after raising a large round. Often, I see growth stage entrepreneurs raise too much capital and then squander some of it. Thanks for the idea.

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