Dear Founder,
You’ve decided to sell your company.
Hopefully it’s because some buyer is aggressively seeking you out. Your suitor thinks you’re great and is offering a huge premium to buy you. Together you will be better and stronger than you are individually. It all sounds beautiful.
…Now a few questions you have to seriously consider.
- How much does this accelerate your trajectory?
- How much will you return for your investors?
- How much autonomy will you receive to execute the vision you set out to do?
- What does this mean for your team?
Here’s the truth: I think many companies sell too soon. Someone is chasing you and trying to capture your upside. But, if you’re executing well and plan to continue on your trajectory, you may be better off not selling now. You’ll have significantly more upside in the future. (By the way, that’s what the acquiring company is betting on—in addition to the synergies that they can bring).
If you aren’t confident in your ability to execute and scale, or if market conditions are changing, it may make sense to consider a good offer.
In these scenarios, you’re in the driver’s seat, which is awesome. But what if the business is not doing as well as hoped? What if you’re worried about whether you can grow fast enough, if the market is big enough, or something else is hindering your desire to keep running the company? Staying independent may not be the right path.
Let’s say someone already called. Sometimes there’s a pre-emptive offer, so you need to know what you’re worth. Is this the market price, or is it so enticing that you’re willing to do an exclusive?
If it’s not enticing enough and you’ve decided to sell, now it’s time to build up demand. The only way to get the price you want is to get multiple parties competing for your company. Try to find another suitor.
- If your company is big enough, you can (and should) hire bankers to do this.
- If you’re smaller, the CEO and board have to do this by reaching out to their contacts. CEOs generally stay in touch with other CEOs who are potential acquirers, so if you got to this stage you already know the players to call.
- Be very subtle in this process. Interested suitors can lose interest if they think you’re gaming them. People don’t want to look like they made an attempt and didn’t pull it off, so if they think you’re not genuine they may withdraw their bid.
A few rules of the road:
- It’s up to you to decide whether or not you want to engage.
- Always be cordial. Agree to stay in touch and check in every few quarters.
- If you are given a term sheet, thank them for their interest. Thoroughly review all the terms and decide whether to turn it down cold, negotiate on certain points or accept it.
- Do due diligence on the acquirer and project what it would be like (both the positives and the negatives) for you and your team post-close.
Selling your company will always be an emotional and complicated decision. Whether it’s a sweetheart deal that your investors will love but you may not feel ready for, or it’s an acquihire that’s great for your team but not so great for investors, expect that it will be difficult to know what to do. My suggestion is to evaluate (with as little emotion as possible) the company’s potential and do what is best for the team and the shareholders. If you need help deciding, call us.
All the best,
Maynard