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Grooming your Business to be Acquired – Part 1

by on July 10, 2013

StrategyIf you’re the Founder, CEO, an Investor or part of the Executive Management Team at your company, you’re probably looking to the future and wondering how do you make a successful exit for your firm?  The KEY to a successful exit is preparation and preparation means Grooming.

To state it another way, the Grooming Process will help you build your business so that you can take advantage of the Right deal to come your way at the Right Time and on the Best Terms.

For small to mid-size technology firms that means building a business to look like one a larger tech firm, maybe a partner, will be willing to pay a premium price for.

So what is Grooming?

  • Taking the steps to Accelerate your growth & either shortening the path to breakeven or growing your bottom line profits.
  • Addressing problem areas that may hurt your future valuation, such as legal issues, financial records, shareholder or cap table problems.
  • Being prepared for Due Diligence, which can be very disruptive to your business.
By having sufficient time to plan, identify issues that require focus, and then time to implement the business improvement and grooming process, the eventual sale of the business should be achieved quicker and at a higher valuation than would have been the case without the ‘business grooming’ phase.
Design to be acquired

Fill a NeedWhen building your technology company you must be aware that almost ALL companies are acquired.  Very few IPO.  And even those that IPO are likely to be bought at some point.

So design your company to be acquired from the start.

Think about how to build a company that fills a need for one of the big tech companies as fast as possible for the least amount of money.

Smaller means more nimble and faster; something a bigger company is happy to buy.

Because making it to an IPO is a remote possibility.

An Ongoing Process

Grooming is not a one-time event.  It is an ongoing process.  It is a mindset; one that should be guiding your strategic thinking. And if you’re not grooming it, you’ve essentially sold it to yourself.  And guess what? You have probably bought a dud

  • Grooming drives your business direction
  • Grooming crystalizes your strategy
  • Grooming effects your incentive programs
  • Grooming ensures you stay on track
Next Posts in the Series
In coming posts I’ll address the following points
  • WHEN to begin the Grooming Process
  • WHAT exactly to do in the Grooming Process
  • And finally, HOW to implement the Grooming Process

p.s.

If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn How to Quickly Increase Your Valuation – A Proven 5 Step Process.  http://www.therevenuegroup.net/free-offer.html

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6 Comments
  1. As a former tech banker, I would argue that a more common metric used in M&A deals is a multiple of forward revenue, particularly for high growth companies. For most promising startups, the acquirer is buying (and the seller is selling) potential. Of course, this tends to lead to “optimistic” forecasts by the company being acquired, and projections that strain credibility can taint conversations and negotiations. The more the buyer is spending for future uncertain revenue streams, the more likely there will be earn-out provisions.

  2. Mike, you make a very good point. The seller is definitely selling future revenue possibilities. The buyer wants to buy based on historical performance. Anything above that, any sort of premium, starts to get into the realm of the the buyer sharing some of the expected revenue synergies with the seller.

Trackbacks & Pingbacks

  1. Grooming your Business to be Acquired – Part 2 | Mike Rogers
  2. Grooming your Business to be Acquired – Part 3 | Mike Rogers
  3. Grooming your Business to be Acquired – Part 4 | Mike Rogers
  4. How to Run a Top M&A Shop | Mike Rogers

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