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How to Get Your Startup Acquired

Kison Patel
CEO and Founder of DealRoom
Kison Patel

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

CEO and Founder of DealRoom

In a previous DealRoom article, we mentioned how over 2 million small businesses are set to be sold or bequeathed in the next decade, creating a massive opportunity for buyers.

But what about the sellers of these businesses?

If you’re considering a divestiture in the coming years, might the one-time spike in companies make it more difficult to divest?

Not necessarily, but all things being equal, it will make it more important to stand out from the pack.

As a company owner of any size, you should always have one eye on making your company more marketable for an acquisition (or sale).

Aside from giving you a better chance of getting acquired or sold should an unexpected need arise, making your company more marketable has the added bonus that it will add value over the long run. Instill good habits in your company’s operations in order to make you more attractive for strategic partnerships with other companies.

In this article, we'll take a closer look at 7 vital steps to help your company be more attractive to a potential acquirer.

Outline your company’s objectives

As mentioned in the paragraphs above, your motives for the divestiture of your business should be closely linked to the company’s objectives.

It’s far easier to put your business for a strong position of getting acquired whilst having a roadmap in place than when it looks like you are trying to sell because the business is floundering and you as the owner have no idea how to turn the ship around.

By putting in place a set of objectives aspart of a wider strategy, you also have something to aim for even if the company doesn’t sell as quickly as you’d planned.

Typical objectives could include:

  • Divest non-core or non-performing assets
  • Hire a competent sales and marketing director to turn around you company’s sales
  • Add more long-term contracts to ensure the stability of the business
  • Improve the company’s credit controls
  • Relaunch the company’s website (it’s remarkable how many SMEs have terrible websites)

This ‘clean up’ of your business and setting targets also tends to improve its valuation when it reaches the market.

That should be the goal of any owner. Putting your business on a good footing and showing growth enables you to show growth on your DCF projection (see next section), adding significant value to your company’s sale price.

Prepare an audited set of financial statements

Like many of the steps involved in selling a business, preparing the financial statements and tax records will benefit the company even if you don’t get acquired or sell the business.

Having an audited set of financial statements, rather than financial statements in QuickBooks, gives your company an air of professionalism.

It may also serve to outline issues, controls or procedures within your company’s reporting that need to be revised (for example, your cashflow cycle is longer than the industry standard).

Acquire a virtual data room

The financial statements and tax returns for your company are the first of many that your company will be asked to present over the course of a sales process.

This can become unwieldy quite quickly: Where do you plan to maintain these documents? If your answer here is ‘on the company’s internal network’, think again.

Potential buyers can’t access the documents there.

It’s far better practice to acquire a virtual data room as part of an organized process.

We can recommend FirmRoom as one such offering.

The addition of the virtual data room is a small investment that can generate significant impact. Before the sales or acquisition process begins in earnest, you can pay for the minimum number of users, reducing costs, but still enabling you to extract all the benefits that a professional VDR can bring.

From this point onward in the sales process, the number of documents you’ll need to procure begins to increase quite rapidly, and few sellers regret the decision to acquire a data room early.

Firm room benefits outlined

Conduct Valuation

Whatever your motive for interested in getting acquired, you’ll undoubtedly want to maximize the value of the sale.

As mentioned at the outset, the coming years are expected to bring an avalanche of business sales at the lower levels of the market, and this will tend to push prices down.

As a result, you may need to veer on the side of conservatism with your company’s valuation to ensure that your business isn’t overlooked by buyers because of a lofty asking price.

The valuation should serve as an important strategy document in itself, providing a roadmap as to where you believe sales should go and how to budget for them.

Prepare and regularly  update a sales memorandum

The sales memorandum is a confidential document that provides a detailed overview of your business to serious potential buyers.

It is usually accompanied by a non-confidential one-page teaser that can be shared with a much larger audience without giving away too much about the company.

These documents should be professionally written and well presented. They are an essential component in the sales process of a business and should be treated as such.

Keep both updated at half yearly intervals, so that they’re ready for impromptu interest and serve to show you that progress that you’re making.

Conduct Inbound  Marketing

Unless you’re actively looking to sell your company, it’s not feasible to let your company’s sales memorandum sit on a number of deal platforms to attract the eyes of potential buyers.

Instead, conduct inbound marketing - write op-eds and guest pieces for blogs, websites, and journals in your industry.

Use a ghostwriter if you’re not comfortable with writing but get your company’s name out there. Make it top of mind when buyers are looking for potential acquisitions.

And, as mentioned, this will also serve to bring your company to the attention of regular clients in your industry.

Network in your industry

‘Networking’ is a word which is endlessly repeated in M&A circles and for good reason.

In a vast number of cases, companies don’t acquire the target which is the best fit for them, but rather the company whose owner maintained a conversation with them for several years, a company which they’ve been tracking for a while, or a just one that they’re familiar with.

Attend M&A conferences that appear relevant to your industry, create a bigger network on LinkedIn (where you can also work on your inbound marketing), and build relationships with companies in your space.

When the time comes to sell this is sure to shorten your path to a buyer.

Conclusion

There are excellent companies on the market that remain unsold for years, while mediocre companies are getting acquired everyday.

The difference is often in preparation: clear company objectives, excellent communication one exactly what is being sold, strong financials, and attractive valuations aspart of a well-pitched sales package.

If your company is making money, it has value. If it has value, it can be sold. Taking the right steps ensures that your company is the one that finds a buyer within a reasonable timeframe at a value which is attractive to you.

world's most intuitive virtual data room to help startups get acquired

In a previous DealRoom article, we mentioned how over 2 million small businesses are set to be sold or bequeathed in the next decade, creating a massive opportunity for buyers.

But what about the sellers of these businesses?

If you’re considering a divestiture in the coming years, might the one-time spike in companies make it more difficult to divest?

Not necessarily, but all things being equal, it will make it more important to stand out from the pack.

As a company owner of any size, you should always have one eye on making your company more marketable for an acquisition (or sale).

Aside from giving you a better chance of getting acquired or sold should an unexpected need arise, making your company more marketable has the added bonus that it will add value over the long run. Instill good habits in your company’s operations in order to make you more attractive for strategic partnerships with other companies.

In this article, we'll take a closer look at 7 vital steps to help your company be more attractive to a potential acquirer.

Outline your company’s objectives

As mentioned in the paragraphs above, your motives for the divestiture of your business should be closely linked to the company’s objectives.

It’s far easier to put your business for a strong position of getting acquired whilst having a roadmap in place than when it looks like you are trying to sell because the business is floundering and you as the owner have no idea how to turn the ship around.

By putting in place a set of objectives aspart of a wider strategy, you also have something to aim for even if the company doesn’t sell as quickly as you’d planned.

Typical objectives could include:

  • Divest non-core or non-performing assets
  • Hire a competent sales and marketing director to turn around you company’s sales
  • Add more long-term contracts to ensure the stability of the business
  • Improve the company’s credit controls
  • Relaunch the company’s website (it’s remarkable how many SMEs have terrible websites)

This ‘clean up’ of your business and setting targets also tends to improve its valuation when it reaches the market.

That should be the goal of any owner. Putting your business on a good footing and showing growth enables you to show growth on your DCF projection (see next section), adding significant value to your company’s sale price.

Prepare an audited set of financial statements

Like many of the steps involved in selling a business, preparing the financial statements and tax records will benefit the company even if you don’t get acquired or sell the business.

Having an audited set of financial statements, rather than financial statements in QuickBooks, gives your company an air of professionalism.

It may also serve to outline issues, controls or procedures within your company’s reporting that need to be revised (for example, your cashflow cycle is longer than the industry standard).

Acquire a virtual data room

The financial statements and tax returns for your company are the first of many that your company will be asked to present over the course of a sales process.

This can become unwieldy quite quickly: Where do you plan to maintain these documents? If your answer here is ‘on the company’s internal network’, think again.

Potential buyers can’t access the documents there.

It’s far better practice to acquire a virtual data room as part of an organized process.

We can recommend FirmRoom as one such offering.

The addition of the virtual data room is a small investment that can generate significant impact. Before the sales or acquisition process begins in earnest, you can pay for the minimum number of users, reducing costs, but still enabling you to extract all the benefits that a professional VDR can bring.

From this point onward in the sales process, the number of documents you’ll need to procure begins to increase quite rapidly, and few sellers regret the decision to acquire a data room early.

Firm room benefits outlined

Conduct Valuation

Whatever your motive for interested in getting acquired, you’ll undoubtedly want to maximize the value of the sale.

As mentioned at the outset, the coming years are expected to bring an avalanche of business sales at the lower levels of the market, and this will tend to push prices down.

As a result, you may need to veer on the side of conservatism with your company’s valuation to ensure that your business isn’t overlooked by buyers because of a lofty asking price.

The valuation should serve as an important strategy document in itself, providing a roadmap as to where you believe sales should go and how to budget for them.

Prepare and regularly  update a sales memorandum

The sales memorandum is a confidential document that provides a detailed overview of your business to serious potential buyers.

It is usually accompanied by a non-confidential one-page teaser that can be shared with a much larger audience without giving away too much about the company.

These documents should be professionally written and well presented. They are an essential component in the sales process of a business and should be treated as such.

Keep both updated at half yearly intervals, so that they’re ready for impromptu interest and serve to show you that progress that you’re making.

Conduct Inbound  Marketing

Unless you’re actively looking to sell your company, it’s not feasible to let your company’s sales memorandum sit on a number of deal platforms to attract the eyes of potential buyers.

Instead, conduct inbound marketing - write op-eds and guest pieces for blogs, websites, and journals in your industry.

Use a ghostwriter if you’re not comfortable with writing but get your company’s name out there. Make it top of mind when buyers are looking for potential acquisitions.

And, as mentioned, this will also serve to bring your company to the attention of regular clients in your industry.

Network in your industry

‘Networking’ is a word which is endlessly repeated in M&A circles and for good reason.

In a vast number of cases, companies don’t acquire the target which is the best fit for them, but rather the company whose owner maintained a conversation with them for several years, a company which they’ve been tracking for a while, or a just one that they’re familiar with.

Attend M&A conferences that appear relevant to your industry, create a bigger network on LinkedIn (where you can also work on your inbound marketing), and build relationships with companies in your space.

When the time comes to sell this is sure to shorten your path to a buyer.

Conclusion

There are excellent companies on the market that remain unsold for years, while mediocre companies are getting acquired everyday.

The difference is often in preparation: clear company objectives, excellent communication one exactly what is being sold, strong financials, and attractive valuations aspart of a well-pitched sales package.

If your company is making money, it has value. If it has value, it can be sold. Taking the right steps ensures that your company is the one that finds a buyer within a reasonable timeframe at a value which is attractive to you.

world's most intuitive virtual data room to help startups get acquired

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