What can you do about selling your company at a good price?
Below is an email I received recently from an entrepreneur whom I respect, and some of the tips I gave him.
From: Mr. O
Sent: Tuesday, November 29, 2011 10:06 PM
Subject: Some questions about M&A
Hope you are doing great.
I am shooting you an email because I believe you are the best person who can address some of the questions I have about the process of Mergers and Acquisitions. I've read your blog, but could not find the information I am looking for. So I thought of emailing you directly.
I am interested to know your thoughts on what the negotiation steps are after the acquiring company makes an offer to the target company.
How much room is there for negotiation before the acquiring company decides to turn its back?
Let's assume here the offer is on the low end of what the founders had anticipated. Are there specific steps to negotiate the offer up without hurting feelings?
Looking forward to your take on this.
Hi Mr. o,
Good to hear from you, seeing that good mind of yours in action.
= It is about process.
= The process needs daily managing to keep it moving forward to the final goal. Expect to be 100 percent consumed with the process. (Your startup business will suffer).
= Final goal is a Decision: Sell or wait or shut down. Start with a realistic assessment of what you should do about each of those alternatives. Put a number on each in monetary value.
= With an offer to purchase on the table, start with an honest assessment of “How can we continue without selling?”
= Use that assessment to draw a line in the sand on the selling price: “We will not sell below this price.” And keep that a secret, of course. This is your Deal Buster number.
= Expect to get closer to -- but not to close up -- the gap between Your Higher Price and Their Lower Price. You will not get to your Higher Price, ever.
= Document a list of the reasons for your Higher Price: patents, brand names, trademarks, licenses, contracts, leases, technology, working IT infrastructure (make or buy economics, e.g. web site, ecommerce), location, customer base (existing), new customers (growing rate), business model (translate customers to money), competitive strength (market position versus competitors), compelling product/service, working company (people who get along together, like their work, get things done), management core team (track record of accomplishments with this company), strategic partners (handshakes, contracts), advisors (special talents), board members (wisdom and perspective, network of connections). Put value on each of those in monetary terms. There will be more here than you (and the Buyer) realize.
= Compare your list to that of “similar” companies, private and public.
= Use valuations of any other private companies that you can get your hands on. Related or unrelated will work. Use multiples of revenue to set values, ignore profit valuation methods. Even multiples of public traded stocks in the same general industry will be helpful to you.
= Lock up your emotions. This is about money. Period. No one hurts anyone in business, that’s for shrinks and priests to deal with. Simply be a business professional during the M&A process.
= Expect to get to do at least one round of Give and Take on the sale price. The first attempt will tell you how open the buyer is to yielding ground. "We think we have assets you might not be aware of that are worth more than your initial offer suggested and we'd like to discuss that with you tomorrow." is a good way to open the next round of discussions. No one likes to overlook something of value, so the Buyer will typically listen (eagerly).
= Competition is your Best Friend: look for an alternative buyer, immediately. The leaks in your search will spur the buyer on, in your favor. You might even find a better priced buyer.
= Measure the Make or Buy alternative for the buyer: how long ,with how many people, would it take the Buyer to duplicate your business? Put a monetary number on that.
= How much more, greater, can the buyer make of your company (than you alone)? Put that Opportunity Value into monetary terms.
= Measure the Cost of Time to Market: How much sales and profit will the buyer lose or gain if it does or does not buy your company?
= Get your Champion Inside the Buyer to get excited about buying your company: s/he will have a special reason to make the purchase (find out that reason, and appeal to it daily, e.g. major promotion, chance to run a business, company hero [others have failed in his/her company], produces a Big Winner for his/her company, etc.).
= Talk to people who have sold and bought other companies, private or public. Listen to their stories and learn.
= A lawyer experienced with M&A can be a super asset to you in this process. Don't use a first-timer.
= Practice your negotiations by talking with advisors and friends, before you make the phone call to the buyer. That is a good process to use to get any reluctant board members on your side.
= Remember this is a process that requires daily effort and management to push it to a conclusion.
Hope that helps you a bit, Mr. O.
(And by the way, there is a lot more to negotiate after you agree on a number: e.g. Your role or contract, ditto for the other people, etc.
BOTTOM LINE: Selling your company is part of a negotiating process. It is intense, emotional and draining. Your basic business will suffer. Get the deal done or ended ASAP. If you prepare, then you will be able to increase the sale price. Know when you will leave the room, what your Deal Buster price is. You will be amazed how many people out there have done this. Contact them and learn. Focus on managing the process daily, be professional, put the emotions in a closet until you are finished, and keep going until it is over. Serial entrepreneurs have sold their companies successfully. So can you. It's part of the winning entrepreneur's unfair advantage.
I wish you The Best on your Adventure!