Lessons From A Business Exit Sale

Selling your company is a second, full-time job. Here’s how to do it right. If you lead a startup, there may come a day when it’s time to consider an exit…in my case, I knew and my investors knew that I would have some kind of equity event during year 5 of my startup. Therefore, I built the exit right into my business strategic plan. Let me share with you what it really takes to get there: the many steps and stages that a CEO and their team goes through on the road to exit. I have gone through this 4 times in the past. But now, I’ve had time to reflect on what I learned along the way. Here are some thoughts for CEOs and startup leaders considering selling their business. 

Create the opportunity

It’s Sales & Marketing 101 all over again. Once you’ve decided to explore an exit, don’t wait for buyers to come to you. Be proactive: create a shortlist of prospective acquirers who might be a good fit, and consider the pros and cons that each has to offer. Assess the fit, not only from a technology and business perspective, but also in terms of vision, values and culture.  Be savvy about what acquirers look for in a company, what their motivations to buy are, and the questions they are most likely to ask. Some of the most common reasons they buy include:

  • Driving their own growth;
  • Expanding their market;
  • Accelerating time to market;
  • Scaling;
  • Consolidating the market;
  • Reinventing their own business;
  • Responding to disruption;
  • Established customer base;
  • Proven business model (avoid mistakes);
  • Can get acquisition capital;
  • Buy versus start concerns (competition);
  • Established brand;
  • Buying a business to buy a salary 

The more opportunities you create, the more leverage you will have. In my case, I took a dual track, entertaining acquisition discussions while exploring a new leveraged recapitalization funding round. This approach allowed me to receive input from a lot of sources and did not allow me to get “tunnel vision”. Understandably these input discussions are often highly confidential. Still, if you can, talk confidentially to peers or mentors in your network who have gone through an acquisition before, and learn from their experiences.

Own the process

As CEO, you have to own the process. Tap into your network to facilitate introductions, or be brave and just reach out. Even if you have retained a banker, the most impactful outreaches are ones that come from the founder or CEO. Early on, while meeting with an investment banker to practice my pitch deck, the banker asked if a VP from a Fortune 500 company could sit in while she was waiting to catch a plane that afternoon. I said “no problem, I would welcome feedback from anywhere I could get it.” Half way through my pitch deck presentation, I noticed a change in the feedback I was getting that VP.  She began to sell her company and how there appeared to be a distribution strategy fit.

Once our open conversations were underway, I discussed what action items were needed to keep discussions moving forward and where they need to be focused. This means I did not want to put the onus on her company to come back to me (although they did just that) or initiate next steps. Remember that the deal may not always be their biggest priority, but more likely than not, it’s yours. By taking ownership, you’ll gain more control over the speed of the process as well as the narrative around the deal. 

Be sure to take a seat at the negotiating table or, in my case, on the conference calls and be in on all the details. It’s true what they say: the devil’s in the details. As CEO, you need to pay attention to the little stuff just as much as the big stuff. The negotiating details can often make-or-break a deal or affect the valuation and can have major post-acquisition implications. Try to be on every session. Even if you have the best bankers or lawyers, it’s your company, your team, your product and your future. The more conversations and details you’re involved in, the better you can influence the outcome. That’s not to say you need to do it all yourself. If you sense you’re becoming a bottleneck, delegate to your team, your lawyers or your bankers. But when you do, make sure you always circle back to stay on top of what’s going on. 

Align your stakeholders

From your executive team, to your investors and your BOD, it’s critical to get everyone on board. Aligning early can be the difference between building excitement and buy-in, and losing stakeholder support. I did a lot of one-on-one calls with my investors and board members early on to tell them about the Fortune 500 company and why I was excited about the opportunity, and it made a huge difference in rallying everyone behind the acquisition. 

Furthermore, your stakeholders may have gone through this before, so you can go to them for introductions or advice if you have any issues or concerns along the way. Alignment is also critical among your executive team. You want them to be excited and engaged in the process. They’re uniquely positioned to translate that excitement to investors or an acquirer during due diligence, and to carry that through to the rest of your company once the deal has closed.

Retain counsel that represents you and key employees 

One of the best decisions I made when I started the company was to retain legal counsel that knew I wanted to have some sort of company equity event during year 5 of the startup. This was because I knew my investors had a 5 year horizon they were looking at for some ROI on their investment. So, legal counsel needed experience in the normal business issues related to employment, compensation and contracts but also specialized in representing founders on M&A transactions (do reach out if you need a referral). And always keep your counsel included in all conversations related to negotiating the deal. 

Remember, it’s business as usual

As I said before, this process will become a second, full-time job for you. But it’s more important than ever to maintain business as usual. If you want the deal to go through, you still need to deliver a product and support key clients. Acquisition conversations are also highly confidential so your entire company cannot be looped in. This is because if your employees sense something is happening, uncertainty will create fear and speculation, so continuing with normal course of business is the best way to keep the company and the team on-track, even on the precipice of major change.

Bonus tip: Don’t lose sight of yourself. Achieving a successful exit is super exciting but it’s also hard work. So, while you’ll be busier than ever making the deal happen, don’t forget to prioritize your mental and physical health along the way.

Summary

As CEO, you have to own the process. Tap into your network to facilitate introductions, or be brave and just reach out. Even if you have retained an investment banker, the most impactful outreaches are ones that come from the founder or CEO. Early on, during my pitch deck presentation, I saw the amazing fit but it was not until I initiated conversations with their CEO that those discussions segued into an acquisition. Once conversations are underway, sign up to take on action items to keep discussions moving forward and where they need to be focused. That means not putting the onus on the other company to come back to you or initiate next steps. The deal may not always be their biggest priority, but more likely than not, it’s yours. By taking ownership, you’ll gain more control over the speed of the process as well as the narrative around the deal.

For more thoughts about selling as an exit strategy, sign up for a free personalized mentoring session.

Copyright ©John Trenary 2021

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