Setting Your Sights

We’ve all been there.  That first conversation that can either be painfully awkward or joltingly exciting, or maybe even a little bit of both.  When you first meet someone new, anything is possible.  Your first encounter in a potential acquisition process should just be a feeler meeting. Too often people try to go too deep too fast. Just as the M-word is taboo on a first date, the term “acquisition” is rarely used in the first meeting, even if it’s on both parties’ minds.  This is not the time to talk technical or get into the weeds.  The important thing to get out of this first interaction is whether you get along, you’re both moving in the same direction, and you both see value in getting to know each other better.  The details can come in the next date (meeting).  Don’t rush the process.

From Playing the Field, to Seeing a Couple People, to Going Exclusive

Even though we all start by playing the field, at some point we narrow down our options to just a select few, and then narrow down further till we find that special someone worth pursuing.  Keep in mind that not all parties arrive at the same place at the same time, and sometimes not at all.  If one party wants to move forward and the other doesn’t, there’s a need for a gentle letdown.  In most cases, though, it’s a mutual decision to move forward and explore an acquisition or call it quits.  Make sure you don’t rush this process, as it’s vital that each party come to this decision on their own in order for everyone to be fully invested in making the relationship work.  This narrowing down phase is where your due diligence occurs—NDAs are signed, you meet the friends and family, and the scrutiny begins.  Just like in dating, exclusivity could run throughout this phase, or occur at the end of this phase.  Different relationships progress at their own pace and there is no set amount of time before two companies decide to “be exclusive”.  In general, though, this phase should run between a few weeks and a few months, depending on the size and complexity of the deal.

Laying it on the table

Especially when you’re dealing with a private company, pre-revenue, valuations can be a tricky thing.  The acquiring company tends to be overly conservative in how they think the target will perform, and the target company tends to be overly optimistic in their financial projections.  Nobody ever wants to throw out the first number, but at some point, somebody needs to show their cards and lay them on the table.  Just like that transitional stage in a relationship where someone needs to say “I love you” first, and then wait and hope the other person says it back, somebody needs to make the first move.

Is it too early to call?

After the first number is verbalized, the back and forth negotiations begin.  Regardless if the acquiring company made the first offer, or the target verbalized their anticipated valuation, the other company needs to take that number back to their powers that be and powwow and number crunch on whether or not it’s a viable number and then come back with a counter.  There’s no exact timeframe of how long this should take either, or when the right time to follow-up is – what’s too early to sound too eager versus taking too long to sound too apathetic?  Like any relationship, communication is key, so the better you’ve established your lines of communication up front, they easier it will be able to negotiate and quickly come to agreement.

I didn’t mean it, baby, please take me back

Inevitably in any high stakes, high emotion negotiation you’re going to hit some snags.  If you’re dealing with a founder who’s not quite ready to let go, or an acquiring executive who has too much riding on getting the deal done, emotions are bound to run high.  I was part of one negotiation where the corporate development team was misaligned with the sponsoring business team and threw out a lowball “final offer” to the target company too soon.  Understandably, it was rejected (with vigor!) and the business team leadership then had to go directly to the target’s CEO and smooth things over with a story of “I’m sorry, I didn’t mean it, please take me back” to get negotiations back on track.  In this case, having a strong relationship to fall back on saved a deal that would have otherwise been doomed.

Take time to remember why you fell in love

The bigger the company (either the acquiring company or the target) the more cooks in the kitchen and the more complicated negotiations are at risk of becoming. It’s not uncommon for negotiations to include representatives from the executive team, senior management, corporate development, legal, human resources, finance, subject matter experts, and a host of other groups all interested in voicing their opinions of how the deal should go down.  It’s key to remember that while all of the due diligence these groups represent is important, at the end of the day, once the dust settles from the merger, who’s going to actually be working with whom? Especially in complex deals with multiple parties spanning months of negotiations, it’s vital that the primary owners on both sides are still taking time for each other.  Meeting for dinner or drinks, having a brainstorming session on all the areas you can jointly explore together, or getting out of the office for an impromptu game of golf or laser tag can do wonders to clear the air, reset perspective, and remind you why you were excited for this merger in the first place.

Celebrate the little things

Most people are familiar with the concept of celebrating the onboarding process as you move past acquisition and into integration, but this shouldn’t be the only time you celebrate. Pre-signing, celebrating major milestones, like completing due diligence, or finalizing negotiations on one set of terms before moving on to the next, can help to make the process feel more like a collaboration and less like a root canal.  Even though negotiations are all about compromise, coming to a successful agreement and celebrating each step along the way creates ownership and allows each party to celebrate the process, not just the end result.  After signing, the onboarding party shouldn’t be the last celebration either.  Holding milestone celebrations like a 6-month party, or a “we just consolidated financial systems” party, or a “first joint product launch” party help foster the relationship during those all important first few months and years.  Only having an onboarding party is like only celebrating a wedding and never celebrating the night you met, or your first trip together, or your 6-month anniversary.  Celebrate the little things to keep the love alive.

Whether you’re the acquirer or the target, keeping these tips in mind can help you survive your first acquisition negotiation with minimal heartache.   The tenets of a good acquisition are not so different from the tenets of a good relationship: transparency, open dialogue, quality time, and a desire to see each other succeed.  Happy acquiring!