An M&A Love Story (Part 1 of 3)

3 min read

Last week, we covered Part II of our three-part series “An M&A Love Story”. Today we go back to the beginning to talk about how to start the M&A story.

If you’re a private company thinking an acquisition might be in your future, our experience is that you jump directly into Part II of the process – what we call “Getting Engaged”.

But the most important step you can take towards a successful acquisition is strategically “Playing the Field”.  This is what we are covering today.

Love Story

Part I – Playing the Field

Building a long-lasting & rewarding relationship is equal parts: knowing your prospects; putting yourself out there positively; perseverance in finding the right partner; and timing.

If you are a larger business with substantial revenues and a strong growth trajectory that is meaningful for potential buyers, then you’ll probably engage a traditional investment banker to help you sell.  The banker will follow a standard process:

  • building a new financial model to position you for a sale
  • developing a list of prospective buyers
  • preparing a teaser and a full confidential information memorandum (CIM)
  • blasting the teaser out to the prospect list
  • following up with potential buyers to move the conversation to the next step.

This process has its place.  But it’s not for everyone all the time.  To maximize your exit, you should be working with prospective buyers long before you are ready to sell your company.  This is especially true if you’re a smaller company and your revenues aren’t going to be driving the buying decision.

First, develop your own prospect buyer list

Think about the different industry segments that your business could be a strategic fit for.  Normally, you should target at least 3 different industry segments with a range of players in each segment.

Going through this exercise – what we call landscaping – early enough in your acquisition planning might open your eyes to new opportunities and help refine your business strategy.  Perhaps you don’t exactly fit with a particular segment today but by adding just a few features to your product or pursuing a few different customers, you can become a better strategic fit.  This is how an acquisition strategy can combine with a business strategy to create additional value for the company.

Second, develop a strategic rationale for your value to a buyer in each segment

This is comparable to creating a teaser, but you’re creating a customized version for each segment.

Don’t make the mistake of getting ahead of yourself here.  If you spend too much time customizing a pitch for each prospect, you’ll likely find all that effort wasted.

The biggest mistake we see companies make in this step is succumbing to the “Sims Effect” – creating an entire world filled with strategies they have created in their mind for their prospective buyers without any real world input.

A buyer isn’t going to adopt yourstrategy for how theyshould operate.  They are going to assess whether you fit into their strategy.  So, at this early stage, use your best intel to define how you fit into their strategy – and then test it, just as you would test a beta product with potential customers.

Finally, reach out and start talking to your prospects.

You might be thinking that it’s too early to talk to prospective buyers.  But at this stage you’re not asking them to acquire you (and hopefully you never will!).  Approach these discussions as business development discussions.

In these discussions, you want to introduce your company and impress the prospect with what you’ve been able to achieve.  Focus on positioning what you’ve achieved to fit the strategic rationale you’ve developed for the industry segment your prospect is in.  Test to see if the rationale sits well with your prospect.  If it doesn’t, ask questions so you understand where your theory departs from their actual strategy.

Use the information you learn to reassess the likelihood that this prospect would acquire your company at some point in the future.  It’s better to live in the real world than spend months or more imagining a relationship that isn’t going to happen.  Uncovering this information might also get you thinking about how to modify your business strategy in a way that not only helps your business but also positions you better for a possible acquisition by this prospect.

If successful, these discussions might lead to some partnership opportunities.  Partnerships are great ways for companies to “date” and develop an appreciation of what they bring to the table.  That lays a strong foundation for future acquisition discussions.

If incredibly successful, you might even find that one of your discussions leads to an acquisition conversation.  If so, this could drive a higher valuation and a better fit than any you’d get from a “spray and pray” approach of sending teasers and CIMs.

Of course, these steps take time and resources, both of which every business is in short supply.  This requires you as a leader to make some priority decisions.  Strategically preparing for an acquisition is an activity often put in the important-but-not-urgent category – until it become a fire drill.

playing the field

Laying the groundwork for a possible future acquisition by “playing the field” is going to help you get a much better valuation down the road.

In next week’s concluding post on the M&A Love Story we will discuss how to close the deal by “Tying the Knot”.

Mona Sabet Mona Sabet is a recovering tech startup founder turned advisor and investor and returned tech M&A professional. She lives in Silicon Valley and is an avid advocate of diversity. ( (@monasnews)

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