Startup Acquisitions: Finding the Right Buyer

All too often, founders are overwhelmed by how exciting but also nerve-wracking the acquisition and everything about it can be. They want to make sure the deal closes at the highest possible price, but it’s also important to find a good acquirer.

But what kind of buyer is the right buyer?

Ideally, you want someone who is not only ready to pay the most but also someone who understands what you’re building and shares the vision for the company to take it to the next level. There are some key considerations when selling your startup, including important questions to ask potential acquirers and red flags to watch out for.

The main question is, of course, what you, the founder, want from the acquisition. Everyone is talking about getting a “dream exit,” but not all dreams are equal.

For some founders, the primary goal is to sell quickly, easily, and for the highest price. However, many are serious about keeping the legacy alive and making sure the team and the customers are still happy and cared for. Whatever it is for you, it’s good to get this covered before you begin the sales process.

Once this is clear, you can start preparing for the acquisition. And some do it from day one, which is a great idea. The more work you put into it at the beginning, the easier it will be to make sense of it all for the potential acquirer and then the final transition. It’s all about streamlining your operations, making sure that your financials are clean, and building honest and trustworthy relationships with your acquirers.

Acquisitions take time. No matter how founder-friendly or fast the process is, it’s a lot of laying the groundwork for the other team to take over. And if you do it right, it can be smooth sailing, and you’ll be way better positioned to get what you want from the acquisition.

But due diligence goes both ways.

All founders are conscious of the things acquirers are going to ask them. However, it’s also important to know what you can (and should) ask them.

Questions to ask your potential acquirer:

What is your track record with acquisitions? Are you known for successful integrations and positive outcomes, or do you have a history of struggling to make acquisitions work?
What is your vision for the future of the products we offer? Will our product be integrated into your existing offerings, or will it remain separate? What does your roadmap look like for the future?
What will happen to our team after the acquisition? Will they be retained, and if so, what will their roles be? Will there be changes to our company’s culture, management structure, or other aspects?
How will the acquisition impact our existing customers and users? Will they be migrated to your platform? How will you communicate any changes to our customers and users?
What is the valuation and deal structure of the acquisition? What percentage of the sale will be cash vs. stock, and what are the terms of any earn-out or performance-based incentives? What will happen to any outstanding equity or stock options held by our employees?

It’s important to remember that an acquisition doesn’t end once the money hits your bank account. You may still need to collaborate and help with the transition, so ensuring open and honest communication from the start is key.

Red flags to watch out for during the acquisition:

Lack of cultural fit: If the potential acquirer has a culture that clashes with yours, it could lead to a difficult integration and potentially result in losing your best team players.
Unrealistic valuation: If the potential acquirer is offering a valuation that seems too good to be true, it probably is. It could be a sign that they are not taking into account all the factors that determine your company’s true value.
On the one hand, it could seem good for you. More money? Good! But that could also mean they haven’t assessed all of the relevant factors and, probably, aren’t taking this seriously enough. It could also indicate that there is a hidden agenda and that an unrealistic offer serves as a distraction from the true intentions.
It’s understandable, though, getting a huge valuation is flattering. Someone sees your company as a really valuable asset. But when approached with such, try to be realistic and research the deals companies similar to yours have had, the state of the market, and your financials. It might not be the easiest to stay on top of these things, but it may save you from an unfavorable outcome in the long run.
Lack of clarity on the buyer’s intentions: If the potential acquirer is vague about their plans for your company after the acquisition, it could be a sign that they are not fully committed to the deal.
Weak financials or track record: If the potential acquirer has a history of financial instability or has a weak track record of successfully integrating acquired companies, it could be a sign to go into this cautiously.
Lack of compatibility with your goals: If the potential acquirer’s goals for the company do not align with your goals, it could lead to a difficult integration and potentially damage the business in the long run. Having a clear understanding of their goals and if they align with your vision for the company is extremely important if you care where it’ll go after you leave.

Selling your startup is a major decision that requires careful consideration and planning. It’s important to be clear about your goals and what you want from the acquisition and to prepare well in advance to increase your chances of success. Asking the right questions and being aware of potential red flags when evaluating potential acquirers can help ensure that you find the right buyer who shares your vision for the company and can take it to the next level. With the right approach, selling your startup can be a rewarding and fulfilling experience.

If you want to learn about the way Peter Leonard, the founder @Myworks Software approached the process of finding the right buyer for his company, check out this saas.unbound episode.