Technology M&A Series Part 1
The best companies are bought, not sold
The most famous adage in M&A is that companies are bought, not sold. What does this mean, and how can you maximize the chance of selling your start-up for an extraordinary outcome?
When you look at many of the best M&A outcomes in tech, the majority of these companies were approached by the acquirer. Negotiating is a function of alternatives, and when your start-up is approached, you immediately have alternatives.
Here are 3 examples:
Execs at the acquirer identify an existential threat to the core business that they have under-invested in, or internal efforts are failing. They lack alternatives in-house and look to M&A to fill this gap. Ex: GM acquiring Cruise for $1B.
The company owns a strategic technology asset and is worried about competition gaining share. They acquire assets to block competition from entering the market. Ex: Google acquiring Waze for $1.1B
The company wants to accelerate user and revenue growth, and adding your product line can help it fast forward to the future. Ex: FB acquiring Instagram for $1B
9 to 10 digit acquisitions for technology companies with very little revenue happen when companies are bought, not sold.
There are many factors out of your control as it relates to M&A. It is hard to time the market as it relates to M&A. It’s difficult to figure out when acquirers are willing to cut a big check and when executives will give up on in-house efforts. At times, the capital markets are closed off, because the economy is hurting.
As a founder, you have two things within your control:
Run-way. 20 months+ is ideal
Preparation. Strategy, tactics, and execution
Patience and urgency. It takes a combination of thoughtful preparation, patience to wait for a deal window, and the urgency to close the deal quickly when there is one on the table.
Next week, I’ll follow up to talk about preparing for M&A, focusing on structure and content for drafting a narrative to outline the company strategy and process.
Common question:
When do you engage with a banker? Ideally after you receive a term sheet, so they can help you to shop the deal around. I looked at dozens of deals at Uber, and very seldomly did we acquire a company at a high valuation when the banker brought us the deal.
Reading this highlighted some similarities and differences in the M&A process in the healthcare industry. My biggest takeaway is to hire a trusted professional and to close the deal as cleanly and quickly as possible.