How To Get Acquired Not Sold

In follow up to my recent post, Are you ready to be acquired? I thought I’d share with you some more thoughts on how to think of your company exit strategy…

Let’s start with the cliche… Great companies are acquired not sold… Couple that with the fact that the majority of expansion stage software exits these days take the form of acquisitions and not IPOs… Makes the careful planning of an exit strategy a high priority for you (the CEO) and your board.

Last week I met with Clark Spurrier of Spurrier Capital. Clark set up his investment banking firm with a specific strategy: to help early stage technology companies prepare for an acquisition by starting with a proactive business development program targeting prospective strategic buyers.

The idea is to target and establish business partnerships with these strategics. These partnerships allow the strategic to “get to know” your company. As the partnership becomes fruitful for the strategic, it makes it more compelling for that potential buyer to initiate an acquisition discussion. Think of it as “dating” for a while with different people, hoping that one day one of them would ask for your hand in marriage.

Once a prospective buyer expresses an interest in acquisition, Clark’s team can use that interest to quickly reach out to the other strategics to persuade them to join the process. Ideally, this process would pit two or more prospective buyers against each other and allows you to pick the offer or partner that suits your aspirations.

Clark and his team follow a framework and process that can extend anywhere from 12 to 24 months before an acquisition actually takes place (if ever).

1. Company Strategy Audit: Most expansion stage software companies don’t spend the time or effort to clearly articulate a strategy and market position. CEOs of these companies tend to focus solely on day to day execution and often lose sight of the long term strategy and vision they are executing. An audit provides an outsider’s perspective on the strategy and brings a market/buyer perspective to it. Without a clear strategy, a banker will never be able to pitch your company in a way that is compelling.

2. Identify Strategic Buyer Targets based on your strategy. Compile a list of large companies that may have a common focus or need your company can address. You and one strategic could both be targeting the same market and your solutions can make the strategic more competitive. Or a strategic may indicate an interest in entering your market, but does not have the right solution.

3. Prepare Customer Targeted Messaging for each of the partner targets. This is key…make the first outreach and pitch compelling to the strategic. This is where your strategy is articulated utilizing the strategic partner’s language and market needs.

4. Begin Reaching Out to Business Development groups within the strategic partners. This process can take months and involves a number of conversations and lots of patience.

5. Identify and Qualify Partnership Opportunities: Make sure the partnership opportunities are compelling and involve much more than co-marketing. In fact, co-marketing opportunities are a sure sign of the lack of interest or lack of perceived opportunity on the part of the strategic partner.

In mentoring software CEOs, I always try to set their sights beyond the day-to-day to at least one year out… and I try to help them visualize where they need to get their companies a year out. When it comes to acquisition, you really need to extend your vision to two years. It will require that much time to arrive at a really good exit.

Some large software venture capital firms actually have their own in-house business development resources. These resources are responsible for reaching out to strategic buyers, making portfolio company introductions “en-masse.” Not quite as effective as the targeted approach of using your own dedicated banker, but it certainly doesn’t hurt.