*As a business strategist with a track record of building technology businesses from start to exit, I’m frequently asked questions about these and a range of related topics. I’ve written these articles because I like to operate At Scale. So when I advise startups 1:1, I often turn that into a blog or LinkedIn post. I work to help answer your questions in the simplest ways possible. These articles are for educational purposes only. If you have any questions you’d like me to answer, please send them to me using my contact form.

In our previous posts, we’ve talked about

• The best way to approach an acquisition – called Playing the Field
• What happens when you find someone who is interested in you – called Getting Engaged

Today we cover Tying the Knot! – the final part of our 3-part series called “An M&A Love Story.”

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Part III – Tying the knot!

You have a signed term sheet from an acquiring company in your hands.  The hard part is over!

Well, not exactly. This last stage of closing an acquisition requires some heavy lifting, and you want to complete it quickly.  As the saying goes, time kills all deals.

Target to close within 4 – 6 weeks of signing your term sheet.  The longer it takes, the more likely something will come up to kill your deal.  Here are some things we’ve seen come up:

• Your “sponsor” leaves or is reassigned, and corporate decides not to move forward
• The buyer’s business takes a dip, and all acquisitions are put on hold
• You lose a key client, and the buyer walks
• A competitor swoops in and agrees to be acquired on better terms
• The broader economic environment takes a nose dive, and everyone gets jittery
• Your sponsor just changes her mind!

You can’t control everything.  But there are some things you can do to keep the deal moving.

GET YOUR DATA ROOM READY

The data room is a document repository that the acquiring company will review as it conducts its diligence on your company and operations.

If you’ve followed our three-part M& process, then your buyer will already know a lot about you. But the due diligence of a private company goes way beyond what is normally disclosed before a term sheet.  Your buyer will go through a deep discovery process to understand your business from multiple perspectives: Commercial, technical, financial, IP-related, legal, people, and more. This helps the buyer validate its strategy, justify the valuation and start to build an integration plan.

Many sellers wait for the buyer to ask for documents.  Don’t be that seller.  Collect and organize your diligence documents while you are negotiating your term sheet so that you don’t waste any time once that term sheet is signed.

Don’t know what documents you need to collect?  Ask your M&A lawyer and advisor.

GET YOUR FINANCIALS IN ORDER

Buyers want to see standard financial statements by quarter going back at least 3 years.  This seems obvious to most.  And yet, we’ve seen many startups that do not have adequate financial statements for their businesses.

In addition to historical statements, a buyer will also want to construct a financial projection of your business.  Don’t let them do this alone!

Guide the buyer’s thinking by preparing your own 3-5 year projections on a stand-alone and pro-forma basis covering the top-line revenue, bookings, expenses, and cash flow.  Expect experienced buyers to go deep into these projections and challenge your assumptions. Make your projections reasonable – you will surely see them after the deal closes!

Beginning to clean up your financials after you sign a term sheet is not only going to delay closing and give an acquirer some serious doubts about your financial acumen, but it can also blow up your acquisition costs with emergency accounting fees.

AND WHILE WE’RE TALKING ABOUT ACQUISITION COSTS…

You might be tempted to choose the cheapest lawyer to run your deal.  Legal fees for private company acquisitions can run as high as a few hundred thousand dollars. But the value of getting a lawyer with M&A experience on deals in your industry and geography will far outweigh the problems that arise from using inexperienced counsel.

Having said that, once you pick the right lawyer, you can do a number of things to manage those legal costs.

• Run point on as much of the due diligence process as you can.
• If the lawyers get stuck on an issue, work with your counterpart to make a business call.
• Keep the bigger picture in mind.  When you’re neck-deep in legal details, it’s hard to remember the forest of all the pine needles being thrown back and forth.

As your company’s chief executive, you still have a business to run. It’s hard to keep up with each and every detail of the acquisition negotiations.  If you don’t do it yourself, and you don’t have a trusted representative doing that for you, you’ll find that it’s even harder to jump back in if you’re needed to solve a dispute before it blows up your deal.

DON’T UNDERESTIMATE THE VOLUME OF LEGAL DOCS!

We’ve emphasized that this stage of the M&A process involves more work than most acquisition newbies can imagine.  For a sense of just some of the documents that need to be generated, take a look at this post from the M&A Lawyer Blog.

WHAT YOU CAN DO NOW (THAT WILL HELP YOU LATER)

You can immediately start doing a few things that will help you have a faster and less painful experience during the actual acquisition process.

• Keep your corporate documents updated and in a single place – include incorporation and organization documents, cap tables, investor agreements, and option agreements.
• Watch out for change of control clauses in your agreements with vendors and customers. They will play a large role when you sell your company since that is a change of control!
• Keep your IP-related documents, patent filings, licensing agreements, and open-source agreements organized and up to date.
• Get a sample due diligence list and set up a document repository that you keep updated as your business grows.

While closing an acquisition isn’t exactly like planning a wedding, it has some of the same characteristics.  You learn a lot about your “new family” during the engagement process – some of the things you learn may surprise you.  There are a ton of details to navigate – and the longer the engagement goes on, the higher likelihood the wedding won’t happen.

Perhaps M&A Advisors are a bit like wedding planners.  We know where things could go wrong and negotiate around those pitfalls; we attend to the details that you don’t have time to deal with and recommend the best course of action for the decisions you need to make yourself.  And when emotions run high, we’ve learned how to bring them down and focus on the value that brought you both together in the first place. Our goal is to help you tie that knot and live happily ever after…