What To Do When You Are Approached for an Acquisition: Tips from an M&A Consultant

You’ve spent years working hard to build your business to a point where investors now see the real value in the company. Even if you’re not ready to sell yet, you do want to know the optimal next steps that showcase your business in the best light and prepare yourself for a possible acquisition.

And to help you with that, here are 8 tips from an M&A consultant on what steps to take when you are approached for an acquisition:

1. Be Clear on the Goals and Motivation for the Sale

You need to be very clear on what your goals are for the acquisition. What is your motivation? You’ve been your own boss for a while now, answerable to no one but yourself, for the large part. An acquisition will change that dynamic. Are you prepared for how this will affect your career, company brand, and future? Although you want your business to expand, consider if this is the right route for growth.

More importantly, we’re trying to establish two things. First, what do you hope to get out of this transaction? Second (and this may not apply to everyone), why do you want to sell your company? The answer to these questions may have a big impact on the transaction.

2. Prepare All the Necessary Documentation

The truth is that most M&As fail. So even if you feel confident, the odds are stacked against you. To overcome this unfavorable possibility and mitigate risks, your acquisition must proceed with caution. The due diligence aspect of the acquisition is usually the most difficult for startups and small businesses. This is because many don’t have proper systems in place, especially when it comes to finances.

During the due diligence phase, acquirers will put different aspects of your business under the microscope, such as the supply chain, intellectual property, technology, and assets of the business, etc. The acquirer may leverage any discrepancies or inconsistencies to bring down your company’s valuation.

To ensure preparedness for this stage, you can look into getting a third-party assessment done beforehand and catch and resolve issues before the sales process begins.

3. Get Support from Trusted External Advisors

Establish an advisory board and a transition team to help you navigate and oversee the acquisition. These two teams should include experts, such as investment bankers, lawyers, advisors, etc to help prepare the organization for a successful acquisition.

They will help showcase the organization, highlighting its strengths and growth opportunities while also ensuring the protection of your rights and interests.

4. Get the Buy-in of Your Management Team and Key Stakeholders

Getting the buy-in of your management team is especially important for a smooth transition. Most companies that have grown past the bootstrapped startup stage will have a management structure in place, with separate duties and responsibilities. The acquirer will likely review if the management team is fit for the role(s) they occupy and if their role is critical. If the sale goes through, know that the buyers will have the power to replace any team members they deem unfit (barring contractual obligations, of course).

In essence, have the support of the board, management team, and other key stakeholders for the acquisition, as this will help reduce last-minute surprises or disagreements that could delay or derail it completely.

The alignment of key stakeholders behind the sale is beneficial because they are instrumental in ensuring the company continues running smoothly and performance remains optimal during this period.

6. Know the Company Narrative

Work with your external advisors, along with your marketing and public relations teams, to create a compelling and credible story and base your pitches around that. Identify the key messages that organizational leadership should convey and craft them in the best way to inform all stakeholders.

Don’t ignore or leave to the last minute the company narrative. Rumors can have a negative impact on important stakeholders, like employees and clients, so control the narrative from the get-go.

7. Shore Up Cyber Security

Companies are especially vulnerable to cyberattacks during acquisitions and transition periods. Cybercriminals (in most cases) will rightly assume that both the target and parent companies will be in a more compromised position during the migration process as people, data, and services move across systems. There is also a larger attack surface that many companies do not account for when preparing their IT security teams.

The transition period presents opportunities for cybercriminals to especially attack new ownership and management teams as they are moving into or out of their roles.

Increasing cyber security protects the company from such issues as loss of intellectual property, data leaks, paying a ransom, bad publicity, and losing consumer trust.

8. Network to Increase Profile

If your company has not yet attracted the interest of a buyer, as an entrepreneur, you must network and establish yourself as a thought leader to increase your profile and that of your company. One way of doing this is through cohesive thought leadership and marketing campaigns. This will include guest editorials and an active blog which will invariably lead to speaking engagements at industry-specific events and/or trade shows.

This will put you and your company on the radar of potential buyers and private equity firms.

Wrapping up…

For many business owners, the next step in their entrepreneurial journey will eventually be to exit the company and move on to their next project. However, saying goodbye to a company you’ve built from the ground up can be more bitter than sweet if you do so without the correct planning.

If you’re interested in reading more about what it’s like to be an M&A consultant, check out my other post on the topic: What It’s Like to Be an M&A Consultant.