M&A Insights from a Start-up Acquired Company Owner

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In a fairly recent article in Forbes, a startup founder highlights some “less obvious things” to know about mergers and acquisitions.  While we may not necessarily agree with these thoughts, we still thought they were interesting.   According to Jason Lemkin, CEO at EchoSign, the company acquired by Adobe, here’s what you should know:

Corporations don’t buy start-ups

Start-ups are really not bought by companies, ultimately, people such as the CEOs and SVP’s are behind the purchase.  Obviously, there are thousands of companies that big corporations can acquire that would all make strategic sense.  However, it’s the CEO or SVP that see a strategic gap in the future and decide to pursue an acquisition to fill that gap.

VC multiples drive deal prices

Most deals are valued using financial metrics and comps, but the actual price is usually based on what would “clear” the VCs.  For late-stage VCs, such as Instagram or Yammer, a deal price can be two times the last round price, or 3 to 4 times for mid-stage VCs. 

M&As are arbitrary

Since M&A’s are driven by individual executives at companies, they can be capricious.  This is especially so at the non-CEO level.  Since priorities at a corporation can change, an M&A offer may never come back, even if you are as good a strategic fit 12 months later.  Unless you’re a company like Twitter or Facebook, an acquisition offer may only come once from individual potential acquirers.

You have to stay

M&A’s are no longer a one-time cash out.  In most deals there are two to three-year retentions, vesting, and re-vesting programs along with potentially 2 to 3 year earn outs.  If your company gets acquired, you should expect to commit a minimum of 24 to 36 months.

In 6 to 9 months, expect to lose attention from the acquirer

After you’re acquired, everyone at the acquiring company will want to help you.  When they make their next acquisition, all of their attention will go there.  You’ll need to continue the momentum yourself.

Although we certainly respect and appreciate Jason’s insight, we don’t feel that this is necessarily the case in all M&A’s.  Sure there can be some culture clashes and sometimes owners of acquired companies don’t really want to stay on after the merger, but we’ve seen some very successful M&A’s in our time.  Of course, that doesn’t mean these insights aren’t true either.

If you’ve experienced and M&A and had to stay on after merger, we’d like to hear your stories.  Please comment about your experiences. 

Source: www.forbes.com

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