Navigating the M&A Process as CEO: A Tale of Values Over Valuations

During my time as a member of Uber's M&A team, we embarked on the challenging task of buying startups. One particular startup had seemingly become a perfect fit to accelerate our technology roadmap. We had extensively reviewed their tech, spent hours with their talented team, and even submitted a term sheet. At the last minute, we walked away from the deal. 

I remember calling the CEO, and delivering the news. “I’m sorry, but we no longer want to buy your startup, we’ve decided to go with another direction”. The co-founders were devastated, a stark reminder of the unpredictable nature of M&A transactions.

The reason for our withdrawal, after having invested so much time and energy, hinged on the importance of retention packages in tech acquisitions. These packages, designed to encourage the original team to stay post-acquisition, are vital to ensure the technology is integrated, used and delivers value for the acquirer.

We proposed a substantial $60M retention package*, divided among 20 team members, based on a balanced approach of comp bands and multipliers. Given the startup's early financing stage and Uber's skyrocketing growth, this was an excellent offer.

But then, the CEO made a strategic misstep. He revised our spreadsheet and shifted $8M from his team, increasing his and his co-founder's compensation from $10M to $14M. This move, which we perceived as unprincipled and greedy, eroded our confidence in his leadership.

Our decision to walk away was not about the $8M—it was about our doubts in his decision-making abilities as we planned to grow the division. Despite the option to increase our overall bid, we chose not to compromise our values.

Practical Learnings for Founders in M&A

This experience highlights a few crucial insights for founders:

1. Avoid Excessive Greed: In acquisitions, potential acquirers evaluate not just your business, but also you as a potential future leader within their organization. Missteps, such as displaying greed, can sabotage a promising deal. For example, a company like Uber might be more inclined to work with founders who demonstrate a balanced approach to financial gain, focusing not only on their own wealth but also their team's well-being.

2. Prioritize Employee Compensation in a Principled Manner: Your team plays a crucial role in post-acquisition success. Ensuring a balanced and principled approach to compensation helps in retaining talent and making the merged entity more valuable. In our case, the CEO's decision to allocate a larger portion of compensation to himself undermined the perceived value of his team.

3. Be Prepared for M&A Uncertainties: The M&A process is unpredictable and often difficult. Even seemingly guaranteed deals can fall through at the last moment for a multitude of reasons. It's essential to manage expectations and have an alternative plan in place.

By incorporating these lessons, founders can better navigate the M&A process, safeguarding the interests of themselves, their team, and their potential acquirer.

*Note: I’ve changed the numbers here to be respectful of confidentiality