Companies don’t sell themselves: a love letter to CEOs
By Gil Beyda (@gilbeyda)
Your first priority is to build a valuable business. This leads to an obvious question: for whom are you building that value? The easy answer is employees, customers and partners, but let’s not forget about the founders and investors who are likely your biggest shareholders. Traditional thinking says “build the value and the exit will take care of itself.” I’d like to challenge that thinking.
I agree that the majority of your time should be spent building a valuable company, but I’d like to propose an additional priority. You should be spending some time strategizing around how to get acquired because companies don’t sell themselves and acquisitions don’t just happen. It takes your attention and effort.
Here are five steps that can help make an acquisition more likely.
#1 Recognize that getting acquired is not an accident
You won’t just wake up one morning to an email from a potential acquirer with a term sheet. None of the acquisitions that I have been a part of (either as an entrepreneur or VC) have been accidents. They took many months and sometimes years of planning to make them happen. Those CEOs understood that acquisitions don’t just happen. They were well thought out, long-term strategies. Yes, there was some luck involved — sometimes a lot of luck — but without the planning all the luck in the world wouldn’t have led to anything. The CEOs put the company in a place where they were attractive to an acquirer and that was a conscious, strategic effort, not an accident.
#2 Make a list of potential acquirers
CEOs should make a list of potential acquirers and understand why each might acquire your company. Acquirers are looking for many things:
- Technology to incorporate into their product
- Products to sell to their customers
- Customers to sell their products to
- Revenue/profit to add to their top/bottom line
- Defense against losing their customers
- Teams that can advance their own initiatives
- Intellectual property to strengthen their market position
- and many more
By understanding why someone might acquire your company, you are better able to frame your plan.
#3 Do business with potential acquirers
Few acquirers come from out of nowhere and make multi-million dollar offers to acquire companies with whom they have no previous relationship. Acquirers are generally watching their M&A targets for an extended period of time and often do business with them.
Acquisitions typically start with some business development initiative and then move to corporate development for acquisition discussions, not the other way around. Someone from BD typically mentions a great partnership with a company to the corp dev, or corp dev hears about a company and then asks BD about them. That is why it’s important to make it a point — without sacrificing your business — to do business with your potential acquirers.
#4 Be prepared for false alarms
Ideally, companies are bought, not sold. Never advertise your company is for sale. Everyone knows your company is for sale at all times (for the right price.) When asked, always respond by saying that you aren’t for sale and are very excited to build a big business. That said, potential acquirers act on their timeframe, not yours, so be open to overtures; not eager, but open. After all, it is your obligation as the CEO of the company to entertain serious offers.
Don’t get too excited when potential acquirers come calling. Sometimes they are just “kicking the tires” without serious interest. Sometimes they need time to “fall in love” with your company. Sometimes they are serious and are testing if you are desperate. Whichever it may be, always be respectful, give the relationships some time to figure out their motives, and be ready to politely walk away if you feel they aren’t serious yet.
#5 Bankers come in handy
Bankers are an important part of the acquisition process in helping companies navigate the treacherous acquisition process. However, bankers serve an important role even before a serious inbound offer. They constantly speak with potential acquirers about the industry, sharing great companies in the space and suggesting who might be a good acquisition.
Meet with bankers and tell them your story. Give them insights that make them look smart to potential acquirers. Then, when an offer arrives and it is time to formally engage a banker, you have an established relationship. This can save a lot of time because bankers will already know your story when it’s time for them to run an M&A process.
Getting acquired is not a science. Yes, great companies have an easier time of it, but even they need to understand that acquisitions don’t just happen. Like any other part of your business, if you want to be successful you need to spend some time on it.