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The IPOs of Uber and Slack have made plenty of headlines lately. But behind each of these tech giants is a lesser told story: a trail of dozens, if not hundreds, of smaller acquisitions made along the way.
On the way to the top, most unicorns eat up strategic startups — acquiring companies that either compete with them, complement their core offering or represent a sage investment. You may never learn the name of these smaller businesses, and their founders may not end up ringing the bell on the New York Stock Exchange. But for entrepreneurs out there, getting acquired can represent a sound, if seriously overlooked, business strategy.
It can be a powerful way to exit and gain liquidity, to free up time and energy for future ventures or to take liabilities off the table. But getting acquired is also a complicated process and fraught with pitfalls — not exactly the best fit if you’re risk-averse. Here are a couple key lessons about the acquisition process to keep in mind.
Time for some self-awareness: are you actually ready to sell?
You’re an entrepreneur. You put your blood, sweat and tears into building your company. Do you want to see it through and watch your business grow? Or are you ready to do something else with your life? For some entrepreneurs, there’s a point where you’re just done and ready to move on — and that’s the perfect time to make your exit. If you’re still loving what you do day-to-day and taking joy from handling the big decisions, then maybe it’s not the right time.
And beyond your personal state of mind, there’s also the state of the market to consider. Be aware of the consolidations going on around you — your competitors may be setting the stage for what’s to come. For example, Heartland is a huge corporation buying up mom-and-pop dental offices, and those who haven’t been acquired are going to have a tough time competing. If you don’t want to be the last man standing, that may be good motivation to consider options for getting acquired, as well.
Get the best value by being active, not reactive
The best way to get acquired is to plan ahead and build with an acquisition in mind. In other words, actively position your company to fill a gap in the market and attract an offer. This strategy of deliberately finding — and filling — the hole in your bigger competitors’ offerings can reap real dividends. The value of global mergers and acquisitions reached $3.9 trillion in 2018, a record-breaking year. Tech today is especially acquisition-driven, with well financed giants like Paypal absorbing whatever startups step into their spotlight, from Venmo to Xoom.
Ideally you want to sell on the way up, not on the way down. Buyers’ offers will reflect what you could be worth, rather than what you’re actually worth, a sort of blue-sky multiple. At the same time, the best deals come about when interests are aligned. Does the buyer want you to stick around after acquisition, for example? If your expertise can promise a smooth transition, they’ll be willing to pay for it.
Build your exit dream team … just make sure they know what they’re doing
One key to getting a fair value for your business is to tap professionals for help. Most entrepreneurs don’t know how to sell a business (after all, it’s not like the opportunity comes around every day), and a DIY approach can backfire. This is your nest egg, and if you penny-pinch now, you may pay for it in the long run.
That means you probably shouldn’t rely on your family lawyer or accountant if they’re not familiar with your industry or the size of transaction. Your longtime bookkeeper may do a great job day-to-day, but he might not be equipped to negotiate a multimillion-dollar sale.
Your best bet is to hire a specific mergers-and-acquisitions pro who specializes in transactions: not only will they keep things running smoothly and efficiently, they’ll have an active list of buyers who may have an interest. Oftentimes, these business brokers operate on a commission basis, so you won’t be out of pocket for their time or expertise.
Check your emotions at the door: data is king
How many entrepreneurs walk into Shark Tank and blow their valuation way out of proportion because of their emotions? Yes, this is your baby. But not keeping a level head can lead to headaches. Be realistic. Know what’s happening in your industry and what other businesses have sold for — deals ultimately should be about data, not feelings.
It’s no exaggeration to say we’re living in the age of acquisitions. With record amounts of venture capital on the table, established companies are hungry to scoop up the next big thing, and startups today are commanding more of a premium than ever. For serial entrepreneurs whose true joy is building a business, not necessarily sticking around to run it for the long haul, getting acquired can represent a great option. But do your homework: a little preparation can spell the difference between a nice nest egg and starting over from scratch.
July 3, 2019 at 01:03PM
Forbes – Entrepreneurs