One of ourportfolio companies is exploring a sale, so we’re talking to investment bankers. Below are some of the interesting insightsfrom those conversations:
You’renot the only one who wants to exit. One banker stated “Google sees upwards of2,500 companies a year they could potentially acquire.” Another mentioned “Adobe receives dozens ofcompanies every week that want to be bought.” There are a select group of buyers that are being bombarded withM&A, so your value proposition needs to truly fill a hole for them, becausebuyers like Google and Adobe only acquire companies that fill a strategicneed.
Youneed to get to $5mm in ARR, and for some bankers, $10mm. Accordingto some of the bankers, $5mm in revenue is the point at which large acquirersconsider you to have truly proven there is a market for your product that theycan then scale.
Havinga buyer in hand helps. If you’re under $5mm of ARR, you needto have a real buyer at the table now so the banker can use that offer toentice other acquirers to the table. Investment bankers either want you to have scale ($5mm+ of ARR) or theyneed to believe they’ll lose you because you have someone else ready to buy.
Sellingthe business takes time. A good banker needs at least 4 to 6 months tofully explore the market for acquirers, help you negotiate the highest price,and do the legal docs to close the deal. Make sure you have enough cash to get through the process.
Establishpartnerships. One of the CEO’s most important roles is toestablish partnerships with bigger players that could be acquirers down theroad. Your most likely acquirer at acrazy multiple will most likely be a partner. It’s hard to get acquirers to pay big numbers when they’ve only knownyou for a few months.
The overalltake-away from many of these conversations is that getting acquired is muchharder than it looks so make sure you’re growing your revenue base to at least$5mm (it shows scale), establish partnerships (partners will be your mostlikely buyers), and be patient.
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