Getting Acquired? Here's How to Get Top Dollar!
It’s acquisition season here on The O’Daily!
I’ll start the bidding at $1B for 100+ blog posts and a great logo.
And that’s how you negotiate an LOI, folks!
Or is it?
Today, we’re continuing to share insider advice for acquisition-curious founders.
Specifically — how to get the best price for your company!
Here are 5 strategies (plus 2 bonus tips) for negotiating a fantastic Letter of Intent (LOI) aka price for your company’s acquisition — including insights from folks on the “buy” side of the deal!
1. Know the game.
Before even getting to the price negotiation stage, you have to know a thing or two about the acquisition world.
First of all, not every acquisition conversation is a good one. There can be significant downsides and challenges as A.T. Gimbel (an acquisition “buyer” himself back in the day) outlines.
A few other insider tips that we talked about last week but are worth mentioning again:
And for goodness sake, if you remember nothing else:
Negotiate hard as heck at the LOI stage!!!!!!!!
It’s only going down from there! 🥴😳🙃
2. Strong fundamentals.
Once you have a sense of the playing field, it’s time to ask the big question:
Q: How do I get a great price?
A: Have a great company.
Apologies for being Captain Obvious here, but I think it’s important to clarify that while there are strategies for optimizing price, there are no short cuts.
You MUST have a good business! It doesn’t have to be perfect. But even the most talented, sales-oriented founder can’t make it through due diligence on dreams alone.
How do you run a fast marathon?
You train your face off.
Yes, there are tweaks and nuances and every once in a while someone is such a good athlete they can run 3 times, drink 12 beers the night before, and run a sub-3 hour marathon.
But that’s like 4 people on the planet so odds are it’s not you. (Definitely not me either!!!)
Same with business.
The best way to get a great price is to focus on building a meaningful, resilient business.
Good things happen when you have revenue, happy customers, and a strong team.
3. Keep your options open.
Along with strong fundamentals, have options.
Not stock options. Future-of-your-business options!
If a company has several paths — acquisition, profitability, IPO, raise & keep growing — it has the freedom to say no.
And nothing attracts PE firms, M&A teams, or investors like a company with the confidence to say no. Dealmakers can sense this.
I’m not saying it’s right, I’m just explaining the reality.
When you don’t need to be acquired is when you’re most likely to get the best offer.
Another way I’ve heard this explained is “willingness to walk away.”
(And if you’re not feeling confident, that’s totally normal and here’s tips on how to fake it ‘til you make it!)
So, what exactly does “optionality” look like?
Investors who will support you on multiple paths
Reasonable cap table (don’t raise too much or on bad terms)
Hiring and revenue alignment (don’t overhire, use revenue milestones to unlock new hires)
Flexibility to pivot if needed (at Pardot, we had integrations with 4 CRMs; Salesforce was the bulk of our customers but if they had acquired someone else, we could have doubled down on a different tech ecosystem)
4. Facilitate competition.
Behind every great M&A strategy and team is…humans.
Yes, they are experienced negotiators who know how to analyze the data and wield a spreadsheet like a knife.
But they are also susceptible to irrational human nature as the rest of us mortals.
Namely, they love to win.
Competition drives up prices because humans want things more when other people have them.
Especially ambitious, corporate M&A humans.
So — make sure you have other buyers at the table if at all possible!
The seriousness of other buyers doesn’t need to be revealed but it will drive the price up AND give you confidence.
If one company is interested, it’s likely that others are too.
It’s not uncommon to engage a “broker” to put out feelers and bring interested parties to the table. You can also do this outreach yourself or get investors and advisors to help.
Real life example: Why did the NBA drive a better media rights deal (as a multiple of revenue) than the NFL? More buyers competing over fewer products.
5. Have a great sales quarter.
Listen. I know you’re busy trying to sell your company and that’s a full time job.
But it’s really, really worth it to stay focused and drive a great sales quarter.
Don’t believe me? Denis Cranstoun, M&A specialist in NYC, commented here that sales numbers dropping is one of the biggest reasons deals fall apart. A.T. also talks about the risk of distraction on a business.
The other reason a great sales quarter can impact price is…
Recency bias, baby!!!
Had a bad sales quarter last year? No one cares!
Your most recent quarter will have the most weight. Use it like crazy in negotiations.
There’s a reason why companies double down on sales (e.g. hire outsourced resources) before an IPO.
BONUS
Two final thoughts:
Talk to other founders or investors who’ve been at the negotiating table. It’s likely they have stories or insights that can’t be shared publicly but may be pivotal for you. It’s an incredibly stressful time and talking to others who have been through it (even if you can’t reveal what’s going on) can also be tremendously supportive.
Do yourself a favor and read this awesome book on negotiation: Never Split The Difference. It will take a few hours and could make you an extra few million dollars. Pretty good ROI. 😉
And should things work out like you hope, be ready to leverage these 6 strategies to make the most of the opportunity post-acquisition!
What advice do you have for founders who want to drive the highest price possible for their startup? Any other stories or resources about acquisitions to share?
Protect yourself. Should the acquiring company decide you are no longer part of their go-forward plan make sure you are protected. This also pertains to protecting yourself should they continue to employ you but not in a role that you want. And, if you can’t be on the Board of the acquiring entity, at least get “observation rights” so you are privy to high-level discussions about the future.