How would you approach a company about aquiring your start-up?

Armand Sepulveda Co-Founder & CEO at Dycap Media Solutions, Inc

January 10th, 2016

Ultimately my co-founders and I would like to exit our start-up instead of making it a life style company. We believe we are more likely to be acquired as opposed to merging with another company or having an IPO.

The question is when you are ready to exit and sell your company, how does that process work? Do you just say, "Hey you guys want to buy us?" "We think we're worth this much!" or is it a more complex processes? We are currently working with a few companies that we see as potential acquirers, and even though our technology would work well with their tech I don't want to give the impression that something is wrong with the company because we approached them about acquiring us. In actuality we would want to sell to start another company not because something is wrong with the current company.

What's the acquisition processes look like and how do you initiate it with out seeming desperate?Comments and directions to resources would be great!

Dustin Walling Director of Consulting Services

January 10th, 2016

There are a number of things to consider before entering the sale process.

1) Is your company maximally positioned to get the best return/price, or are there things you need to do increase your chance of a sale, and your chance of the best price?

2) Is a sale to an external party the best option, or is there another option that's better? If to an external party, will this be to someone you work with (a client or vendor), a strategic partner, or a financial buyer/equity firm?

3) Do you intend to sell all of the company in one shot, or a portion of the company in order to finance more dynamic growth, selling the rest at an even higher price later?

Be clear on your goals and make sure you're ready before beginning the process. Once you start, you may find yourself in the awkward position of being asked to reveal previously confidential finances, strategic plans, etc., to people who you once considered clients or even competitors. It can be a nerve racking process.

Have you had a valuation done to determine a fair price for your company? Keep in mind there are many types of valuations for many purposes. Valuations to consider are financial (DCF) valuations by valuation specialists or accounting firms, as well as market-driven valuations that an investment banker would prepare. Financial valuations tell you what your firm is theoretically worth; market-driven valuations tell you what similar firm have sold for. They're different but valuable before you enter into a negotiation process.

As to your question of how the sale process works, the best sale process does not approach just one potential suitor. The disadvantages of approaching one potential suitor include 1) you're only hearing one plan for what's going to happen to what you've created, and 2) you're only hearing one offer. The best sales process creates an auction style environment that creates multiple bids for the company, driving up the returns for you and leaving you more confident that you're picking a good outcome for the company on which you've toiled so hard.

Let's talk about resources:

1) If you're determined to D.I.Y., then get educated. You've already started this by being here, but continue to read. Google. Reach out to me through LinkedIn. Check out Axial Network (Axial.net). It's a great place for business owners to go to transact. And check out our blog at http://meritharborgroup.com - it has great information about the selling process.

2) Consider Exit or Transition Planning. The purpose of this planning is to a) choose the right exit strategy that fits the business and the owners, and b) make sure the business and owners are ready for the exit and will get maximal returns. Remember that buyers like to discount for every problem they find in the business. Exit Planning is about fixing those problems and maximizing your return.

3) If you're serious about selling and want maximum returns, think about not doing it yourself. Hire an Investment Banker (or a business broker if your revenues are under $5M). They are skilled at running a process that will get you the best returns.

I hope this helps. Reach out to me for more.

Greg Duplessie Helping my clients FIND and SELL to their own clients

January 10th, 2016

Hire an investment banker, even a small boutique one, and the process can be quite simple. A good investment banker will easily cover it's fees and percentages by getting you more than you could ever get yourself. I'm not a banker, but I've been involved with lots of transactions like this, so feel free to reach out to me if you'd like to discuss or learn more. /greg

Jim Monroe Founder at OTT Age Industries

January 10th, 2016

This is not something you want to do yourself if you've not done it before. The acquisition process requires expertise, contacts and experience, and you need to find someone you trust to help you through it.

This might be an investment banking group or an individual, but be aware that a part of their job is to help you be attractive to an acquirer. That means they will have suggestions for how you talk about the team, product or market that may or may not be consistent with your current thinking. You will need to be able to separate yourself to some degree and be as objective as possible.

Which is not to say you turn it all over to an outsider. It's still your company and you will need to be involved in making sure the process is moving forward just as you would a product release.

Also be realistic about your valuation and its impact on your shareholders and team. Try to understand the marketplace so you can realistically assess the role your company plays and the value you represent to acquirers.

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

January 10th, 2016

Definitely hire an intermediary. You need an independent evaluation of your business and you need someone to look for potential purchasers for you while you tend to your business. Start with an open mind and a desire to get the best price that you can. Don't limit yourself. The ultimate purchaser may be on another continent. Both my partner and I have worked for mainstream investment bankers. Feel free to contact me if you need some help or direction.

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

January 10th, 2016

Clint Wilson Experienced Software Executive

January 10th, 2016

Armand,

Cool company (http://www.dycap.co/)

A good one recently I have learned a ton from & you could too is to review the Constant Contact acquisition by their long time partner, Endurance, a web hosting platform.

On the conference calls and following presos you can see how they approached it pretty quickly. If you read between the lines on the CFO forecasts in calls with analysts you will see some buyout embedded strategy too which is pretty cool.

They booked over $1800/subscriber on their platform so almost 2x the LTV of their 650k clients:)

http://news.constantcontact.com/press-release/endurance-international-group-announces-definitive-agreement-acquire-constant-contact

Presos:

http://investor.constantcontact.com/events.cfm

https://cc.talkpoint.com/deut001/091615a_ae/?entity=40_K7NW40N

~Clint

@cazoomi

January 11th, 2016

Armand, While there is a lot of great advice here it's all targeted at the transaction of an exit. While a sale of the business is usually what business owners want it's because they don't want to work it themselves for ever.

My philosophy is build your business for "self-sustainability". That is build it so it will run by itself. If you do this then any exit option is possible along with one more. Keep it a live off the profits for the rest of your life!

You can read more about the concept of business self-sustainability at the following link: http://yoursmallbusinessgrowth.com/tag/self-sustaining/

I hope this is helpful and good luck. - Dino

William Agush Founder and CEO at Shuttersong Incorporated

January 10th, 2016

The first step is to know where you fit and who the acquirers might be. Getting data from Pitchbook is a good place to start, but it's pricey. It will tell you all the deals that were done by quarter in your space, what the revenues were (if any) and what the deal size was. Another way is to set up a few meetings with investment bankers that work in your space. Position it as a get to know you meeting, tell your story and what your exit strategy is and the'll give you candid feedback. I've done a number of these meetings for Shuttersong and came away with a clear checklist of what we needed to accomplish in order to even being the process. As for valuation - this is where reality sets in. A buyer will tell you what they're willing to pay and what the terms might be. As the investment bankers I talked to said, if there's only one acquirer - you'll get what they offer. If there's 2 or more then it's all about how strategically important you are. Finally, you may not get the ability to go off and start something new that quickly. Any deal with most certainly involve tying you and your co-founders up for a while so they get what they're paying for. Most buyers won't be highly sympathetic to "not wanting a lifestyle business" - remember part of why they are buying you is forward value and dynamics not just the here and now. So I think you have some work to do before you even think of reaching out to the CEO or VP Corporate Development of a target company

Lonnie Sciambi

January 11th, 2016

Armand,

Some good advice, here - the best of which is to hire a professional to guide you. But to help you, at least, understand what is in front of you, here's a blog post that will provide some insight - http://bit.ly/1RGeikB

Good luck,

Lonnie