Recently we have seen a lot of acquisitions of successful startups by great corporations. Follow this guide to effectively prepare your startup to an acquisition and avoid chances of failure.
How should your startup face an acquisition?
Acquisitions And Startups
Acquisition usually refers to a purchase of a smaller firm by a larger one. That’s why growing startups are often involved in acquisition by larger groups or corporations.
Although most of M&A end in failures, there are many examples of successful startup acquisitions, such as Amazon acquiring Ring, and WeWork acquiring Naked Hub.
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As a founder, going to sell the project you’ve worked so hard to build – the thousands of hours of work, anxiety, risk and perseverance – is far from being easy.
By the time you’ve made it to the point that the company has the potential to sell, you begin to wonder whether to sell at all.
This is how Jason Nazar, startup entrepreneur and co-founder of Docstoc, defines this delicate moment in a startup life cycle:
Almost everyone regrets the sell afterwards, because they think they can keep growing. The DNA of any successful entrepreneur is to believe that they can always achieve more.Jason Nazar
Preparing For An Acquisition
Here we present some tips you can follow when preparing for an acquisition and minimize the chances of failure.
Getting to know your buyer: here the aim is to find out whether the company is the right fit for your business. Cultural alignment between both businesses is often important in determining whether the acquisition of your startup will be successful.
Understanding the future of your startup: find out what the buyer want to do with your business, what will happen to your employees, and how acquisitions have worked out in your industry.
Assessing whether the future plans line up with your expected position in the company: most entrepreneurs find it difficult to imagine their startup without themselves, but when it comes to an acquisition things are going to change.
It’s plausible that post-acquisition
- You’ll lose some of the control you enjoyed before selling your business.
- The buyer may want to introduce major changes.
- You may lead the operations, but you’ll also have to follow the buyer’s rulebook.
We all remember the leaving of Steve Jobs in 1985 from Apple, after struggling with the board and its then-CEO John Sculley.
When he was removed as head of the Macintosh division, Jobs understood that the recent changes his company suffered were not leading in the right direction.
After returning as a permanent CEO in 2000, Apple progressively became the successful company we all know nowadays, and one of the most active entities when it comes to acquiring growing startups.
Key Steps In An Acquisition
Yet, when we talk about startup acquisitions, people mostly talk about the outcomes. The entire process of the acquisition remains often a black box, hiding bureaucratic and operational actions that must be taken in consideration.
Don’t underestimate due diligence: the best start is to hire an experienced legal counsel and a financial team for the acquisition.
Discrepancies during due diligence can cause delays in acquisitions or eventually kill the operation, that’s why it’s vital hiring the right experts. M&A lawyers have the necessary skills and professional background to cope with the acquisition process.
Other important steps are:
- Valuation: get your business independently valued so you’ve got an accurate, fair number to present to the buyer, as he wants to pay as little as possible.
- Financial and accounting services: think to prepare statements, financial schedules, expense accounts, revenue reports.
The buyer may also ask for earnings predictions and forecasts to make an idea of your startup cash flow. Don’t hesitate to get some help with your accounting staff to complete these tasks.
- Law firm: support from a great law firm is necessary to help your staff organize and standardize legal documents the buyer requests.
Hiring outside support will cost you, but with a team of professionals it will be more likely to witness a successful acquisition.
Inform your team about the acquisition: most of the team members will have questions and worries about the change. The best way to deal with them is to present multiple options and benefits they can gain from the acquisition.
Following these tips will help you to take stock of the situation, and ensure your decisions will be the best for you and your startup.
This is a simple guide to prepare your startup for an acquisition. You can also read our article to discover what is an acquisition.