Want to sell your company? Here are 10 tips on how to do it.
NOTE: How you approach these steps can vary quite a bit based on how your company is performing, the market you are in and your personal network.
I can speak to my experience selling a company that I bootstrapped quickly to a few million dollars of annual revenue in the mobile programmatic advertising space.
1. Talk to some bankers. At almost every revenue level and company sector, there are people who specialize in this process. Keep in mind that talking to bankers, doesn’t mean that you need to use them. They can provide insightful information and also signal that you are open to selling your company without you needing to stand on the corner with a big “FOR SALE” sign.
2. Talk to investors. You never know if you will be successful in attracting suitors and even if you have some traction, you’ll want to retain some leverage. If you have a term sheet for investment or potential interest from investors that can be a vehicle to provide some leverage (maybe not as good as multiple interested buyers, but better than nothing). You may also end up deciding that you’d prefer to take the investment and try to grow.
3. Understand the metrics that drive value in your industry. In AdTech for example, companies (at least in 2014) we’re valued off top line revenue. In other industries, its EBITDA. Be aware of your industry so you can set expectations and negotiating ranges correctly. This leads to #4.
4. Be realistic. If your company is a rocket ship, this should give you some optimism that you’ll be able to bid up buyer offers…but if your company is doing OK or poorly you’ll want to set expectations in line industry metrics and be more open minded.
5. Accounting diligence. Make sure that all of your accounting and financial statements are in order. Ideally use a GAAP accounting method. (Most) people are not stupid, so you likely aren’t going to pull the wool over any eyes with accounting tricks. You’ll just make people suspicious.
6. Product (or service) diligence. Whether you are a tech company or some other kind of company, be prepared to answer a lot of specific questions about how your product works.
7. Time. This process can take a very long time even after you sign an LOI with a prospective buyer. I had no idea how long a Purchase Agreement could be until I went through this process.
8. Purchase Agreement levers. If you are fortunate enough to receive a purchase agreement from a prospective buyer, read it thoroughly with your lawyer and make note of all the various possible levers for negotiation. Even if you think some elements are trivial (ie transfer taxes), you can get proverbially “raked over the coals” if you aren’t aware of them as negotiating levers on other points you care about.
9. Get a lawyer with experience negotiating deals in your space. They will have an understanding of whats “market” for each element of the agreement so, at a minimum, you don’t screw yourself.
10. Integration. Remember that after you are acquired, in most cases, you will end up working with the company that bought you. This is where a lot of unhappiness and failure takes place. It’s very important to plan for the integration between the two companies. This means answers to questions like specific roles for everyone (there should be no ambiguity even if it requires tough conversations), a timeline for the company product or services to become a part of the larger company offering, any sales and marketing changes.
If you are a very large company, I am sure the process is a bit different, but has similar principles.