Joel Espelien (cont’d)
Next, we turn to Rob Schram in our headquarters outside Seattle on qualifying the buyer.
Rob Schram – Screen Your Buyers
Following your initial discussions with a potential buyer, it's important to screen for serious viable interest. The load on your management team for calls, presentations, and visits will be significant and distracting. So, there's no sense wasting time with buyers who can't or won't conclude a deal. You need to quickly determine if the buyer is willing and able to pay a reasonable price and how they're planning to fund the deal. For some buyers, this is a non-issue, but it's something to keep an eye on. Are they asking for a seller note, that is you loaning a portion of the purchase price? Are they planning on offering cash or stock? If cash, do they have it in the bank, or will they need to do an additional round of fundraising in support of the deal?
More complex structures can work but they may be a red flag that you're not working with the right buyer. Understanding these fundamental expectations will help you determine not only if the buyer can put a reasonable term sheet together, but how well the companies are aligned, and how well things are likely to go after the deal closes.
Joel Espelien
Thank you, Rob. Now let's head to the UK and hear from Peter Prince in London.
Peter Prince – Asking Questions
One thing becomes true after you've been approached, and that is you can speak directly to the CEO of the potential buyer. You need to know certain things by way of qualifying the credentials of the buyer, most certainly their acquisition experience and track record. It's great that you've been approached, but it's more important to know as earlier as possible that the buyer could complete the deal, so to save any time being wasted. One question which will give you some comfort is what deals have they already done? This will also tell you if they have experience in completing a deal. Also, it will give you the chance to get to know their process. Not only should you find this out, but also how they did those previous acquisitions.
Ask whether they have bought in your space before and the valuations they put on these transactions. You'll ultimately find out if they are an experienced buyer which means you have some idea of how the process will go. Finally, you can use these facts to make your position stronger with any other potential buyers.
Joel Espelien
Good advice, Peter. From London, we go to Salt Lake City, Utah and Corum dealmaker Steve Jones.
Steve Jones – Having an Edge
The most critical element you need to drive to your optimal valuation is competition in suitors. The challenge is to engage with other buyers before you get too far down the path with the most interested party. When you get an overture from a potential acquirer don't get too fixated on that tree and miss the entire forest. First, you should be tracking all of the company's investment firms who are actively pursuing transactions in your market. How do you do that? Invest 30 minutes a month in Corum's Tech M&A Monthly report.
All of the information is there, and be sure to get our annual report and most recent quarterly report. You'll get an inside look at the players that you could engage with and you'll understand the drivers that will capture their interest. Second, create a list of potential partners in your ecosystem. Include alliance partners, channel partners, largest customers, investors, and even competitors. Don't forget private equity firms either, because they could create a platform or view you as a bolt-on depending on the scale. If you've been approached, this is urgent. If that hasn't happened yet, be thinking about it today so that you'll be prepared when the time comes.
Joel Espelien
Thank you, Steve. It bears mentioning that all of our dealmakers are former CEOS that have built and sold their own software companies. You can be sure they've walked in your shoes and dealt with this kind of inbound offers.
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.