How To Position Your Startup To Be Acquired

Whether you’ve grown your business specifically to sell at a later stage, or the thought has recently crossed your mind, being well informed on the acquisition process is key to getting the most out of your company.

There are many things to consider along the way, including the monetary amount you will receive, the potential effect on employees and how to ensure that the startup acquisition is a success.

In this article, we highlight a variety of methods you can use to position your startup to be acquired.

What Is An Acquisition?

By definition, an acquisition is where another interested party purchases a large enough percentage of a business in order to achieve control (greater than 50%).

The original owner can in many cases choose to keep a smaller number of shares in the company if they wish to, allowing them to receive regular income from the company that was once theirs.

If you do opt to retain a smaller percentage of the business, then making the acquisition a successful one will likely be of huge importance.

However, often companies are bought outright with cash, stock in the parent company, or a combination of both.

The Benefits Of Selling Your Company

To gain a better understanding of why acquisitions are common, let’s take a look at a few of the advantages:

• Monetary Gain – Selling your company can put a lot of extra zeros in your bank account.

• Less Work – Selling your business will allow you to enjoy the freedom of working less. Or spending more time on the work you love the most. Or this free time can then be used to pursue something else, with more experience and confidence under your belt.

• Achieving The Mission – A startup can be a long grueling haul. Putting your company in the hands of a better funded company with more talent and a large customer base can put you on the fast track to achieving the mission and vision.

Potential Drawbacks

Of course, there are also drawbacks to consider before committing to a sale:

• Opportunity Cost – If the new business is successfully scaled over time, it’s possible that you will lose large gains. Many previous owners look at their business and think “I could have done that myself”, which can lead to a sense of frustration.

• Less Control – As you are no longer a majority shareholder within the company, the control you have is diminished or eliminated entirely. The new owners could make decisions that you don’t agree with, which could come in the form of things like abusing customers, or firing employees you particularly liked.

• Cost Of Selling – Legal fees and other costs can quickly eat away at the amount you will receive from the buyer. While these procedures are necessary, you can feel like you’re wasting money throughout the process. In addition to the financial costs, a lot of time will also be spent. Not to mention any splits with other equity partners.

Positioning Your Startup For An Acquisition

If you’ve weighed up the above points and have decided that selling your startup company is the best course of action, you should then position it accordingly.

Below is a list of criteria you should look to fulfil before announcing it’s for sale.

Ensure That Your Company Is Ready

For many large investors, they don’t want to work on the little things. Most are looking for a company that is ready to be taken to the next level. A few things you could focus on are:

• A Well Run Business – Employing the right staff and putting people in their correct roles will give potential buyers less of a headache. If your workforce is productive and highly trained, this shouldn’t be a problem. Make sure all your accounting and legal paperwork is organized.

• Overall Good Reputation – Think online reviews and the number of repeat customers the business receives. Although it’s only a startup, a few positive signs are a great way of showing that the company has been operating with customer service in mind, will continue to perform, and also carries a lot of goodwill.

• Plans For The Future – As a business owner, coming up with expansion plans is a natural process. Have these plans ready to show potential buyers, so that they gain a greater understanding of your vision and the potential value after the acquisition.

All the groundwork should have already been done and the business should be showing strong signs of development before declaring it ready to sell.

Grow Your Brand

Growing your brand is another thing you can focus on, if you haven’t already.

This can be done without the need for a massive investment by utilising lean and bootstrapping methods.

Keep in the mind that investors will be searching for these things when checking out your company, so having everything in place and out there will be highly beneficial.

Calculate Your Financial Situation

Start by working out the basics of the business’ financials. This can include things such as earnings, regular costs and investments that have been made during creation. Businesses that have had serious initial investment also need to factor in splits, dilution and the fine print of the capital they’ve accepted.

You should also review your list of assets that are owned by the business. Determine which assets will be transferred to the acquirer when the time comes.

Clearly Lay Out Your Company’s USP

If there’s something about your business that offers a strong and defendable advantage over competitors, make it clear. Potential USPs can include the following:

• Price – Some businesses will be able to offer a lower price for their goods or services, either based on a lower margin (and higher volume) or a cheaper cost per unit.

• Service – Your business may offer a better level of overall service, either provided by your in-house team or other companies you have already acquired.

• Operations – Finding a new approach when it comes to conducting operations can also be another attractive selling point. These types of innovations are likely to increase productivity.

Unique selling points can come in many forms. Have a think about your business and list what sets it apart from the crowd.

This includes or is in addition to any intellectual property you have built and registered.

Do Your Research

Address selling your company in the same way as you would apply for an investment. Do sufficient research so that you can comfortably answer most questions without the need to check.

This will again demonstrate how well you know the business and other concerning factors. You may think you know your business inside out without the need to research – If this is the case, get a friend or family member to ask you a series of questions as a small test run.

You should also prepare a pitchbook or presentation for a potential acquirer, and organize your information in a virtual data room. This could include key information and relevant stats that will answer their initial queries. Not only does this come across as highly professional, it will also help to speed up the process by removing the need to go back and forth.

Work Out A Fair Price Point

You can work out a fair price point for your business in a few ways. Typically, the most popular method of valuation is by using a revenue multiplier, followed by the addition of the value of all assets. The time scale to use for the multiplier will depend on your chosen niche and whether it is a physical or online-based business.

If you don’t feel comfortable working this all out on your own, turn to an expert valuer. This cost may be worthwhile in the long run and it will help to avoid underselling your company.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes