Answer from John Cabri, former CMO of MobileForce Software.
I have worked with five companies that were either early-stage or turn-around that marketed themselves for acquisition. I led the process for three of the companies and was closely involved in the other two. Of the five companies, four received offers and three closed. And while each of these exit processes was unique, there are some common characteristics to them.
Here is my experience “selling” start-ups:
- Assuming that all of the significant stakeholders and investors are on board with your plan, you have to prepare for a situation where the offer price is well below any discussions that you’ve had with your team or the prospective buyer. Make sure that you communicate frequently with these constituents, especially if the conversation involves terms of the deal.
- Selling your business is a time-consuming, frustrating and business-encroaching process. It will take up most of your time — if not all of it.
- If you have employees, expect them to find out about the potential sale. This is important to manage if you want the employees to remain with the company throughout the process. They will have many questions.
- Leverage anyone you know or can be introduced to who has been through the acquisition process, regardless of whether you use an investment bank.
- Do you have a lawyer(s)? Are those people heavily versed in M&A? There are a lot of clauses that your acquirers may insert at any time, and some of them may not be in your best interest.
- If you don’t have updated and audited financials, you need to get that done. Make sure your books are squeaky clean.
- Will the key employees move on to the new company? Is it an acqui-hire situation?
- How defensible and unique is the IP? Be prepared for technical due diligence.
- Most buyers will pay very little for potential market revenue. If you have no revenue, focus on points #7 and #8.
- What are the synergies with the potential buyer’s product portfolio? What about the synergies with their market? How will the acquisition of your company be accretive to the buyer?
- You need to cast a wide net. For four of the companies that I was involved with during the offer process (one of which utilized an investment bank), we created at least 50 potential acquirers with “our” expectations for accretion and acquisition synergies. We developed a playbook and told all of the individual, unique stories to each of the 50 or more potential buyers. You need to quickly find a balance between what, how much and when to disclose — and what you should hold back.
I've probably omitted some pertinent steps in the process. Oh, one more thing: Never, ever lie or materially fudge information. If you get caught in a lie, everything you have presented will be questioned. This will likely cause potential acquirers to walk away from the deal.
In the end, if I were going through this process again today, I would seriously evaluate and strongly consider a platform like Exitround, especially if I was dealing with a company that had an expected value of less than $25M.