Built-to-sell: why your company should be acquired 🤝
Surprisingly, the best way to “build to sell” is actually very similar to building a successful company.
By being intentional about the process of building your company with the goal of being acquired, you drive focus on the value you create to the segment of the potential buyer.
In today's issue, I'll go through the most important questions related to building and preparing your business to be acquired.
Here is a great thread on the topic by Sam Parr, founder of The Hustle who recently sold his company to Hubspot for a few millions.
The first question that comes to mind is when should you start to consider being sold. Similar to fundraising, the best time to sell your startup is when you don’t need to or want to. Don't wait until you are experiencing a lack of traction, tough competition, or difficult time fundraising.
The majority of M&A deals value companies based more on the target strategic value than their financial value. Below are some common strategic reasons:
Fear from the competition: the potential acquirer wants to keep your company away from another large company. Or a competitor to an acquirer is out-executing it in a business and you can help the acquirer become better.
Fear from competition #2: The acquirer is running a similar business but you are executing much better. They are afraid of you.
Pressure from investors: executives of public companies need to demonstrate “big moves.” So by acquiring your business there could be some synergies
New geography or market: you are operational in a region or in a segment the potential acquirer is trying to break in and acquiring an existing business is a tremendous shortcut.
Acqui-hire: The acquirer doesn’t have the talents you do.
Now, how should you initiate the conversation? The best way to start M&A conversations is by having ongoing interactions with potential acquirers about ways you can work together through partnerships. Eventually, you will meet an internal champion in the company that is convinced that buying you is a better idea than partnering with you. Remember: you don’t sell your company. You get acquired.
These potential acquires could be either large corporations or other startups that are heavily funded by Venture Capital firms that are under pressure to grow fast. This recent article talks about how the huge amounts of funding into startups in Europe are enabling them to grow through the acquisition of other companies.
The price paid for a startup largely depends on what the company can justify to the market (previous comparable acquisitions are a good benchmark) and the sale price agreed to by you and your investors (in case you have any).
Once you have one offer, a route would be to approach another potential acquires (competitors of the company you received an offer from). You could let them know that you are in 'acquisition talks' with another firm, but you would prefer to speak to them since you believe more in the value of synergies with their company. This is a risky move, but by having options you may be able to get a better price.
Even if investment bankers are expensive (1 to 2% of the total deal value), the good ones can help tremendously not only on the negotiation per se, but also on the understanding of the competitive landscape, and what buttons to push to maximize your deal value. It's often better to have a smaller piece of a larger pie.
My favorite guide on this topic was written by Justin Kan, from Y Combinator. Have a read.
Hopefully, this article helps you to be more intentional in your business-building pursuit. By having a clear goal in mind, it is much easier to navigate the complexities and challenges related to a startup build-up.
🎧 Podcast recommendations
▶️ Invest Like the Best: Roelof Botha - Sequoia’s Crucible Moment: For those of you interested in the world of VC - this is a very interesting move for Sequoia. In my view, they are reacting to a competitive environment of funding that was brought with the SoftBanks and Tigers around there (heavy pockets and longer-horizon perspective).
▶️The drive - James Clear: Building and Changing Habits: I am a huge fan of Peter Attia, a longevity-focused MD that is all about life optimization. In this episode, he talks to the one and only best seller writer James Clear on all-things-habits related.
This is Open Books - a weekly newsletter carefully curated by me, Leticia Souza. Every week I’ll be compiling relevant topics around finance and financial strategy - from choosing your first accounting system to how to successfully close a fundraising round to your business.
In a world full of noise, I aim to bring clarity and direction to your finance processes so you can manage your business in peace. If you find the content useful, do your friends a favor, and please share this newsletter with them.
See you all next week 👋🏼
Leticia
Exciting topic.