How To Prepare for A Successful M&A Exit: Tips For First-time Founders
The M&A process is known as dreadful and complex but good preparation can make a big difference, especially for first-time founders to ease the stress and get the best exit option along the way.
Once you decide to exit through M&A, understand what you want, craft a solid strategy, think independently, do your research, get your house in order, and surround yourself with the right people to help you.
Relationship and network pay
Long before thinking about exit through M&A, invest in relationships that form your network and develop meaningful and value-creating commercial partnerships; some of them might be the leads for your best exit options.
Know what you want.
Understand that your objectives are personal, but the process is collective. If you're not the sole owner of your company, it's crucial to have open discussions with your co-founders and investors to align your goals and develop a strategy. In M&A, tradeoff is often required when making a choice, so prioritize what truly matters to you.
For instance:
Some founders aim for a minimum EBITDA multiple of 12, the higher the better. They're willing to invest over 2 years in selling their company and are open to earnout arrangements.
Others seek a clean exit with 100% payment upfront and no earnouts, committing a maximum of 6 months for the transition.
There are those looking for a strategic buyer dedicated to product development and employee retention, and they're willing to stay on as CEO for 2-3 years.
Know what you want, align with your cofounders and investors, and develop a decision-making mechanism on the valuation and deal structure; this will allow you to move very fast during the process.
Do your research on potential buyers
Strategic buyers:
You know your space and the players in it.
Look horizontally:
which competitors might want to consolidate the market
which competitors in different geographies might be interested in entering your geography
Which adjacents might be interested in expanding their product portfolio
Look vertically: which of your suppliers or customers need your product and technology to achieve vertical integration
Financial buyers:
Different investors invest in different stages of companies and different sectors. Check your stage in a company lifecycle and match it with the list of funds that buy out companies like yours. If you have an advisor, they know this pretty well. If not, spend some time researching and reaching out to the funds, it can work as well. In addition, if you have financial investors, they should be able to help through their knowledge and network as well.
At the end of your research process, you should be able to have a shortlist for contact. M&A is all about having options, it is critical to have a reasonable number of options on your shortlist.
Craft your (marketing) story
It is important to tell a good story about your company, which will attract buyers and get you a higher valuation for your company. It’s worth investing time in it.
Some example questions to gather the content for your story:
What value are you creating for your customers?
What is the product vision and strategy?
Who are your customers? What is your market and positioning?
What are your moats/defensibility?
Where can the company be in 3~5 years?
Who are management team?
What are the financials?
Why financial investors should buy your company?
Why strategic investors should buy your company?
Presentation format and visuals are equally important on top of the story itself.
Get Your House in Order
Ensure that your business records are there and easy to retrieve as electronic versions. Organize your financial reports, audit records, contracts, tech documentation, and other critical documents. You'll need to present these in a data room later in the process.
Surround Yourself with the Right Team
Throughout the M&A process, it's essential to have the right people by your side:
Delegation Partners: other executives who can take on some of your day-to-day responsibilities, allowing you to focus on the M&A process.
Process Experts: Internal and external professionals who can help you:
Internally, a CFO experienced in M&A is invaluable. If that's not an option, a capable project manager, complemented by a skilled finance manager, can provide substantial support.
Externally, an experienced advisor can help manage the process and negotiate on your behalf if you prefer not to DIY. A seasoned lawyer specializing in M&A is indispensable for closing the deal and safeguarding your best interests.
Exit through M&A is a complex process. A thorough preparation can get the best out of it for you to reach your goals.
Some helpful readings:
The real story of how Facebook almost acquired Waze, but we ended up with Google