Thursday, June 14
A little over a month ago, I had the pleasure of sitting in with a group of software CEOs sharing insight into their companies. One member of the group had sold the business fairly recently and shared the inside story of the transaction from start to finish. Frankly, it was fascinating!
I’ve known the company for probably ten years; I’ve followed their successes in the media and in person too. So, I really enjoyed the conversation and inside details. One of the most interesting parts of the story was the description of the final negotiations, in which a lot of personal negotiations took place (roles for executives, compensation structures, etc.). I loved the vivid description by our CEO as he recounted this meeting as the “**** You! No, **** you!” meeting!
Reflecting on the conversation, I wanted to share a few tips that came out of the discussion.
- It’s important to choose an investment bank that has experience and has done deals in your area - understanding, connections, who are active buyers
- Negotiate a success fee if you can: lower rate on lower end of the range, higher percentage if they can get more
- There are three categories of buyers: strategic, technology and financial - ensure your banker is looking at all three.
- Revenue concentrations can be troubling to buyers, 30% or more to a single customer will get you a discounted offer.
- Guaranteed, recurring revenue is huge, all other revenue is discounted.
- When down to the final, serious buyers, you’ll need to provide excruciating detail on every aspect of the business - lawsuits, every contract, everything (create a data room); don't hold anything back in order to protect yourself later.
- Be transparent with your staff to avoid rumors.
- Don't let emotions get in the way of making the deal (even if you don't like the buyers).
- Strategic buyers may not pay more than financial buyers in the software industry
- Senior executives should get an advisor to help you with their personal planning too.
- The sell transaction takes a ton of energy, be ready to stop running your company for a time being during the process.
- The selling company pays for all the transaction costs.
- Being acquired and being merged can lead to A LOT of process changes, be prepared for that.
- Be prepared to be indignant with management controls you didn't have before.
- Negotiate a severance if you're merged and don't become the new CEO.
- Negotiate a non-compete that's geographic, though you will probably have to include not poaching existing clients.
- Stick to your guns over the important issues, don't give in if you don't have to.
While I’m a little sorry to see a local company get acquired; I’m confident this company’s operations will remain local and that they’ll continue to grow. I’m looking forward to the next great inflection point for an excellent, local tech company!