Joel Espelien (cont’d)
Next, we turn to my fishing buddy, Dan Bernstein. Like myself, he just returned from the Corum fishing trip we heard about earlier, Dan?
Daniel Bernstein – Maximize Value
You have a fiduciary responsibility to your shareholders to maximize value, even when you have an attractive sounding deal in front of you. Even when you've qualified the buyer, and prepared to present your company in the best light, you still have the responsibility to get the best value for your company, and you can't do that talking to just one buyer. A valuation helps set the bar, especially one that is rigorously researched and created by a credible source.
However, leading with a valuation too early gives away your greatest leverage. You need to create a valuation model for your business anyway, so use that process to give you the time you need to get feedback from more than one buyer. If the buyer wants to be preemptive and blow your expectations out of the water early then they are still welcome to do that. But a credible valuation coupled with outreach to strategic, synergistic partners will help you achieve an optimal outcome.
Joel Espelien
Thanks, Dan. You have to take your fiduciary duties seriously whether a CEO, officer, board member, or in many cases with founder run software companies as the majority shareholder. You never wanna be in a situation where a critical voice asks how many buyers did you talk to as a market check, and your answer is one. Next, we hear from Jim Perkins in Arizona.
Jim Perkins – Asking Around
As you put together your valuation it's time to make additional discreet inquiries to other serious buyers, particularly those that have expressed interest in your company in the past. This must be done at the highest possible level because of the sensitivity of the buyer already in play. These potential buyers may be your competitors, the buyer's competitors, and possibly one of your largest customers or partners.
Buyers appreciate knowing the current state of the M&A process and will be looking for additional guidance on valuation range and deal structure. This is when patience becomes key. Give other buyers enough time to respond to make sure you have more than one bidder.
Joel Espelien
Good point, Jim. From the sunny southwest, let's head over to New York and hear from Dr. Ivan Ruzic, Ivan?
Ivan Ruzic - Negotiating
In business as in life, you don't get what you deserve, you get what you negotiate. This is never truer than in software M&A. So, what's the key element that must be in play to get the best deal? The answer is fear, fear in the mind of the buyer that if they don't get your company someone else will take it away from them. With only one buyer in the mix, there is no fear. They're in control, calling the shots, getting it all their own way. They see you as having no option. One buyer is no buyer. Without healthy competition in a managed auction process, the optimal outcome for you and your shareholders will never be achieved.
Joel Espelien
Thanks, Ivan. One buyer is indeed no buyer. Based on everything we've just heard I'd like to close with this. The stakes are high when you get approached with an unsolicited inbound offer. For many of you, this is the time to get some help, and call in professional advice to help you work through the issues. You may not get a second chance. Thanks again to all of our panelists, and back to you, Tim.
Timothy Goddard
Thanks, Joel. We are right at our half hour mark, so any questions that have come in or come in in these last few moments we'll follow up by email. Hope to see you at one of our live conferences including World Financial Symposiums in London, New York, or even Sydney coming up, and with that let's go to our close.
This is a segment from Tech M&A Monthly: What to Do When You Are Approached (September) webcast. For more information, please visit Corum Group's Software M&A Webcast Archive.