Advice For Selling A Business: 5 Key Tips For A Successful Buyout

Today’s topic: Advice For Selling A Business: 5 Key Tips For A Successful Buyout

Have you ever wondered what it’s like when a business owner gets approached for a buyout?  You’re in luck and about to find out as we continue our interview with Ryan Ferrier today.  Ryan, who runs Bootstrap My Life, experienced this first hand not just once but twice!

Sydney: What was it like having Microsoft and Zynga acquire your startups?  What advice do you have for a small business owner who is approached for a buy out?

Ryan: At Powerset, the search company that Microsoft acquired, I was one of the first employees but I wasn’t a cofounder. I was really involved in building the company, but I wasn’t super involved in the acquisition process.

That acquisition was pretty sweet. I just got a big check from Microsoft when the deal closed. Frankly, I couldn’t believe it. Just a few years earlier I had been living on minimum wage.

At Serious Business, the gaming company that Zynga acquired, I was a cofounder. That experience was more stressful, more complicated, and more rewarding.

I was COO at Serious Business, so once we had agreed to terms with Zynga, I was on center stage. It was my job to make sure that everything went smoothly.

I had to oversee the Due Diligence process – where the acquirer checks out all of your legal, financial, and corporate info to make sure that everything is as you’ve represented.

I also had to get our team on-board with joining a new company. That was hard because we had 40 or so employees, and they all loved working for Serious Business.

As well, a lot of these deals fall through at the last minute because there are so many moving pieces. Therefore, once you’ve agreed on basic terms it’s really important to keep things moving quickly if you’re the smaller company getting acquired.

I barely slept for a month and a half, but we got the deal done 🙂

It was a weird feeling though. I definitely felt a sense of accomplishment once the deal closed, and I liked getting a nice payout as a part of the acquisition. Still, it almost felt like getting a divorce.

You have this great company that you really love, and then you need to relinquish control of it and hand it over to someone else. It was harder than I thought it would be.

Advice for startup and small business owners who are approached for a buyout:

1. Make sure you’re willing to hand over your baby.

No matter how good a fit the acquiring company is and no matter how awesome your future owners are, once you sell the company, it is no longer yours.

You now work for someone else. You no longer have the final call or ultimate control. Make sure that this is a transition that you are willing to make before handing over the reigns.

2. Transparency with discretion.

If your considering an acquisition and you have employees, your team will eventually know that something is up. They’ll wonder why people they have never seen before keep stopping by the office and why you are in so many off-site meetings.

I’m a big fan of transparency with employees – as long as it’s productive.

Once it’s apparent that something is going on, I recommend pulling your team together and letting them know the following:

– Other companies have expressed interest in merging with your company.
– You’re exploring all options and haven’t made any decisions.
– While it’s flattering to be recognized this way, your company’s focus remains offering a killer service/building a great product, etc…
– As long as your employees can commit to keeping this news within the company, you’ll continue to update them if there are new developments.

Then, drop it until there is some other major news. You really want your employees focused on doing great work, not chatting by the water cooler about what is going on.

That said, do NOT go and tell your company the moment that someone expresses interest. Though I value transparency, transparency without discretion can be distracting and destructive.

Once the company knows that there is a potential acquisition, there will be distraction. There’s no way around that.

Therefore, I advise to wait as long as possible and until a deal looks immanent before addressing your team.

It’s a balancing act. But if you are in touch with your employees and your company culture, you’ll know the right timing.

3. Find multiple suitors.

Nothing forces an acquiring company to make an offer quite like other interested parties. As well, nothing increases your company’s value and your negotiating power quite like multiple interested parties.

Think of it like dating. When you have multiple options, you have the upper hand.

Therefore, once one company expresses interest and you are comfortable selling your company, begin to gently let other potential acquirers know that there’s been interest.

From this position, you can get multiple verbal offers, meet multiple potential acquirers and choose the best option for your company.

4. Negotiate early.

Once you decide to do a deal with an interested party, you likely will sign what is called a Letter of Intent (LOI).

This means that the two companies intend to merge and have agreed to basic terms. Normally, it is stipulated that for a set period of time you cannot talk to any other companies about a potential acquisition.

This radically shifts the balance of power in favor of the acquiring company. You’ve agreed to talk to that company exclusively and the closer you get to a deal, the less likely you are to pull out.

Therefore, do not wait until the last minute to negotiate things like your salary and retention package (bonus for staying X months at the new company). If you save that conversation for the day before you are going to sign final documents, you will lose out badly.

Instead, identify the items that are important to you and negotiate them into the written LOI if possible.

5. Once you’ve signed an LOI, push the pace.

Again, once you’ve signed an LOI with a larger company, you no longer have other active suitors. Therefore, you’ve lost a good deal of leverage.

It’s important to move quickly to make sure that you supply the acquirer with all the information that they need to do their Due Diligence and sign the final agreement.

Untemplaters, what do you think of these 5 key tips for a successful buyout?  Have you ever worked at a company that was acquired – what was that like?  Do you have any advice for selling a business from personal experience or observation?

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