David Cohen has a great post on his blog titled “You have Acquisition interest – now what?” Ironically, we have been approached by a number of companies interested in talking to us about selling ShopSavvy. Only recently did I start taking this ‘interest’ seriously. To be honest, only after reviewing David’s post did I realize I could be handling this ‘interest’ a lot better than I have been.
The easy points are, well, easy:
- Do you like the acquirer? Could you work for them? If yes, move to the next step.
- How much would you sell for (cash/stock mix)? Agree on minimum number, now.
- Give the high level details (revenue, expense, headcount, etc).
- Ask for Ballpark Offer.
Of course David realizes that most acquirers will resist giving you a ballpark offer. I can attest to this fact myself. They will want more questions answered before they can even think about putting an offer together. David has the perfect sentiment on this answer, “This is Bullshit, assuming that you’ve given them basic revenue and expense figures.” He recommends holding your ground.
The truth is, running a startup is hard work. Answering detailed questions from acquirers is a lot of work. David suggests, “explain that you’re very busy working with customers and improving your product, and that you can’t afford to distract the company without having at least a ballpark understanding of the offer. Explain that it’s obviously non-binding and that you won’t hold them to it, but that you’re just trying to get a sense of it.”
- Don’t proceed without the ballpark offer.
David recommends getting help. He suggests finding a ‘mentor’ who has experience working these sort of deals from both sides. Pretty good advice. If the potential sale price is high enough it might even make sense to engage an investment bank to help you put together a ‘process’. Of course hiring a bank is a big step. Eric Ver Ploeg, one of our mentors/advisors explained to me that once you hire a bank you WILL sell your business. This is a good thing if you want to sell, but not so good if you are not sure you are ready to exit.
- Figure out if the ballpark and your minimum number are close.
Again, David hits the nail on the head when he explains that the low end of the range will be the actualoffer. The only exception is that if you can figure out how to get more than one buyer to the table (more likely if you have a bank running your process). Assuming you like the offer and have answered all of their questions it is time to get a term sheet.
We began working closely with one acquirer earlier this year only to have them go silent. Even if you have built a relationship with the people you will be working with, sometimes they will inexplicably stop talking to you. I have recounted our experience over and over and it seems EVERYONE is familiar with this sort of behavior. My advice? Don’t take it personally. David explains, “these things just take time. Internal fires that have nothing to do with you come up. People go on vacation. Things always move slowly. Do not assume this is going to happen.” He is right.
David’s best advice? “If at any point in the discussion you decide that something is not right, just stop. Ask for the return of confidential information, and politely bow out. If the deal happens – congratulations! Assume it won’t until it actually has.”
