M&A Tips for Startups

Getting your idea off the ground and into a business has taken a lot. You’ve hit bumps and rough patches. But now acquirers are taking note. You’ve arrived…almost.

The M&A process begins with potentially complex and disruptive conversations. It can demand significant attention that takes you away from daily operations. Moreover, leaks from these discussions can affect your relationships with your employees, as well as your competitive standing within the industry. The longer the process lasts, the greater the likelihood that it will fall through. Time isn’t on your side. That means you need to be ready before an offer comes in. Even with limited resources, focusing on key areas can make a big difference by expediting the process and shortening the timeline to closing.

Maintain Good Records
Acquirers have professional teams that are prepared to comb through your records. They’ve been through this process before, and are systematic. You need to be prepared for a detailed, organized, and potentially invasive due diligence process. Though the pace can feel overwhelming, getting your records acquisition ready now can reduce stress, prevent downgrades in valuation following due diligence, and inspire confidence in buyers.

Protect Your Credibility
Acquirers don’t expect startups to be perfect. Every business faces difficulties, but some are more serious than others. Whether it’s a disgruntled co-founder, tax or accounting issues, or issues with intellectual property, own up to issues early. Acquirers will uncover these issues anyway. If you don’t reveal them upfront, it can harm your credibility, lower the value of your business, and potentially even kill the deal.

Rely On Your Advisors
Your legal and financial advisory teams are experts on M&A. The process can feel daunting and confusing, and your board may not have the benefit of significant M&A experience. So talk to your advisors to better understand the process. This can help set realistic expectations about the process and the ultimate sale price. Your financial advisor should crate interest in your business and maximize value. Your lawyers and bankers should help you structure the transaction. Work with both to better understand how best to benefit from the transaction.

Retain Control of the Process
Experts can bring much to the table, but ultimately, decisions are up to you. With so many players, conflicting interests are inevitable. So ask your expert team to assemble a list of stakeholders at the outset. This can help you retain control and ensure you understand exactly who you’re working with. Meet with your advisors on a regular basis, and don’t allow decisions to be made on your behalf without your input.

Don’t Forget the Details
In most transactions, the parties tend to focus on the purchase price. Yet hidden sources of value or cost can be deeply buried in deal terms. Consider what portion of the purchase price will be paid in stock as opposed to vesting following closing. Or the indemnification process, and how it affects liability. Talk to your advisory team about what’s standard in your industry, and then lobby for terms that are equal to or better than this standard.

Be thoughtful as you navigate the process. Advocate for your interests aggressively, but be realistic. Listen to your advisors. They’ve been there, and have your best interests at heart. A little greed is good. An unrealistic value assessment can kill the deal. Heed this advice at every step along the way.