Seven Things To Do When You Get An Acquisition Proposal

You launched your startup a few years ago. The journey has been a rollercoaster, with its highs and lows. Amidst the excitement, there have been challenging moments that tested your resolve. Yet, through perseverance and determination, you've been gearing up to take on the challenge of building something truly remarkable.?

Out of nowhere, you get a call from a contact you’ve known for a while. They’re from a big company that wants to buy your business.

What should you do?

I have been involved in twenty one exits to date. Three as an entrepreneur and eighteen as an investor. I cannot count the number of times that I, or one of my partners/colleagues, was approached regarding an acquisition of a related company. So much has been said and written about running a startup — but hello? — what should you do when you get approached about selling your baby?

Here are seven things you should do when that call comes:

1. Take a deep breath. This is the time for introspection and to focus on the big picture. What are your chances of building a truly epic business? I’m sure you thought your business had the potential for tremendous growth when you started. With the accumulation of data on customer feedback, team strengths and investor capabilities, and the competitive landscape, what do you really think now? If you believe that your odds are better going for the long run, don’t let tactical issues sidetrack you. A typical example: if you are short on cash, that’s not a reason to sell your company — instead, approach your investors and ask to sell some of your shares in a secondary sale. Experienced investors will likely support you and help you complete a secondary transaction.
2. Talk with your partners but keep things very quiet. It’s not just about you, it’s about your co-founders and your key investors. You have to share the news with them. If you’re still uncertain of your own position, be careful not to send the wrong message. The last thing you need is your partners getting ready for an exit and you don’t want to sell. Strive to be informative and collect as many inputs as possible. At the end of the day, this is a team game and whatever your partners want will impact your decision. At the same time, don’t share the information with more than a couple of close partners. The last thing you want is rumors about an acquisition circulating as this could certainly damage your business.
3. It’s not about the (first) specific proposal. The (first) specific proposal may not be the right one for you but getting it is an opportunity to explore your own views on an exit. Experience has shown me that if you act right, you can leverage the first M&A proposal, to better ones. If you were able to approximately double the price and improve some of the other parameters, would you consider selling? If your decision is to not sell, communicate it openly with the other side. Do this in the right way and you’ll win lots of positive points that may serve you well in the future (saying ‘no’ to a lot of money displays a lot of strength and stamina). If the proposal is coming from a potential strategic partner, you may want to leverage these new scenarios to cement a partnership that provides you with value.
4. Get help. What if the decision is to go ahead and explore an M&A? In this context “go ahead” does not mean “sign a deal now.” It means, “Let’s look into this seriously” or “Let’s see how we can improve this before making a decision.” The first thing you need to do is to find someone to assist you. It’s always beneficial to reach out for help but in this case, it’s necessary for several reasons. First, you likely have not done this before, and you need the guidance of someone who has been through it. They have navigated the process and know what to watch? out for. Second, if you do everything yourself, you might come across as overly eager or even dishonest. Third, you have a company to run (remember that?)? You don’t want to lose focus on the business.
5. Create alternatives. The key to improving your position is to create alternatives. As long as you haven’t signed a Letter of Intent (LOI) with a “no shop” clause, you can — and should — explore alternatives. Since time is a factor, it will likely be difficult to reach out to companies that you (or your ‘help’) don’t know well already (hence the advantage of using well-connected assistance). Reach out to them directly, drop hints that you are considering a proposal, and get their reaction. If the feedback is positive, your life will be much easier. A good alternative could be an upcoming round of financing. Your potential buyer knows well that if/when you close your next round of financing, the window of opportunity will close (or at least, the price will go up dramatically). If needed, leverage a potential financing round to improve your positioning.
6. Optimize but focus on the important points. Just like in every negotiation, you will never be able to get everything you want. Make a conscious decision; What is really important to me and what is just “nice to have?” Be ready to show flexibility to get something in return. Remember, selling a company isn’t like selling a used car. You will likely work for the buyer for years to come and you’ll have a business relationship forever, it’s in your best interest to understand and be flexible in regard to their needs as well.
7. Make your choice. Undoubtedly, this is a life changing decision and far from easy. Not only is your career at stake, but also the livelihoods of your co-founders and employees. This is a critical decision for your investors and for the vision that got you started. Still, after the discussions, negotiations, and optimizations, you need to make up your mind. The worst outcome would be to continue deliberations at the expense of losing focus from running your business. As said before, this is a long, time-consuming process. Think what could happen if a few quarters go badly because you were distracted? What could happen if the rumor is out that you are for sale? This could lead to a much unwanted downward spiral. So, make a decision. And if you say ‘no’ and continue to run the company with your full attention, you are likely to get additional — most likely better — opportunities in the future.

Throughout my career I have seen many entrepreneurs face this dilemma. I have seen it all– from founders that say ‘no’ and regret it to founders that say ‘yes’ and wonder forever if it was the right decision. Regardless of your choice, my final advice to you when getting an acquisition proposal is:

Rejoice. Building a company isn’t easy and the odds were very much against you from day one. You wouldn’t have gotten the proposal if you weren’t doing something right. That’s a great reason to feel proud. Regardless of the decision you make and the eventual outcome , take pride in everything you’ve accomplished.

This content was previously published in July 2020 and appears with minor edits and updates.