An M&A Wave Is Coming: 4 Ways to Determine Whether You Should Sell

Spread the love

Feeling the deal.

There’s no one-size-fits-all formula for deciding whether a sale is the right move. Every company is different, and every entrepreneur has unique circumstances to consider. Some have partners who force their sales, while some want to retire or explore another field; others are under too much financial strain to continue leading the business.

Then, there are considerations to make about the company itself. The biological age of the team, the company’s cash flow trajectory and its potential for future revenue are ultimately the greatest arbiters of whether a company is sold — and at what price. Each entrepreneur’s situation will vary depending on these and other factors.

However, the following strategies will guide entrepreneurs as they weigh the pragmatic benefits of acquisition against their own priorities:

1. Do a gut check.

Tech founders who build successful businesses become incredibly in tune with the organization’s subtleties and the rhythms that make it work. They should use that intuitive knowledge to “feel the deal” before agreeing to an acquisition. Something that looks good on paper won’t necessarily bear out in the real world, and smart entrepreneurs should trust their instincts when they don’t align with the numbers.

Potential buyers approached me five times in four years in pursuit of my business, Uniregistry, as I told DN Journal in 2007. Several offered nine-figure deals, and they were willing to go higher at each point in our negotiations. I met with each one and seriously considered their propositions. In the end, selling didn’t feel right. I may sell eventually, but not until I find a situation that suits my goals and represents what I believe is best for the company.

2. Size up the buyer.

Learn everything there is to know about potential buyers. Why are they interested in your company? What’s motivating them to make this deal? What are their long-term intentions for the business?

Skift founder Rafat Ali admits that he sold paidContent to Guardian Media Group without understanding the buyer’s history in regard to its acquired properties. Guardian Media Group sold paidContent to a competitor, who then closed the startup, much to Ali’s chagrin. “I should have done more due diligence on their history of supporting other companies,” he told the Press Gazette.

3. Dig into the details.

Most contracts to purchase a company begin with a Letter of Intent, followed by the “definitive docs” that define the minutiae of the deal. Read these carefully. If the contract is full of draconian stipulations, clawbacks and provisions that would force you to give up the company in the event of poor buyer stewardship, run for the hills. Contracts should be balanced and clean. If your buyer has a dark heart or is likely to fail, you’ll find out in the LOI and definitive docs.

4. Distinguish between failures and opportunities.

If you can’t come to agreeable terms, walk away. Take the opportunity to restructure the business, or hire a CEO so you can take time away and gain perspective. A failed deal does not equate to personal failure. There are more buyers in the world than there are companies to buy, so hold out for the right one. At the end of the day, you want to feel proud of yourself for building something great and leading with integrity.