Thinking Like an M&A Expert: 7 Tips on Aligning Yourself with Potential Acquirers

John-McCullough by

It’s been a month since I joined OpenView, and I’m up and running. My onboarding paper work is finished, I’ve met the entire team and been warmly welcomed, and I’m spending time with our portfolio companies, learning what each of them do and how they create value for their customers.

Now, it’s high time I say a public “hello”, and what better way to do that than by sharing a few insights that might be useful for some of our followers. Throughout my career I’ve held various roles within investment banking and corporate M&A, working on both the buy and sell sides, as both an advisor and investor. I’ve also built a network of corporate and business development teams around the technology industry and learned plenty from them on best practices.

During my first few weeks on the job at OpenView, I’ve been met with a lot of curiosity around the corporate deal-making engine — particularly how companies source and target their deals. For entrepreneurs or CEO’s aiming to position themselves with strategic buyers and partners, let me share some things I’ve picked up along the way and taken from recent conversations with corporate development teams and M&A experts across the software space:

1) Corporate development groups look at hundreds (if not thousands) of companies each year

It’s a huge top-of-the-funnel, with ideas coming from all directions, and saying “no” is a constant part of the process.

As a business owner or CEO, have your narrative developed and elevator pitch ready for when you do get in front of an M&A team. Buyers have a strong idea of what they want, and should be able to recognize a fit rather quickly before deciding whether it’s worth their time to dive deeper.

Having a basic corporate overview presentation or just a few slides ready to share can make that first conversation go a lot further. 

2) Many high potential targets already have a partnership or strong relationship with the acquirer

I plan to follow up with a blog dedicated to leveraging business development to drive strategic exits, but the point to make here is that strategic buyers often know their targets for years. It might be a formal go-to-market partnership, or just a relationship between management teams, but in some way, shape, or form the product and technology is a known and proven quantity.

Think of this relationship or alliance as the ‘dating’ period. It’s a chance for a target company to get to know strategic buyers (and vice versa) and prove out its product value, all while potentially gaining one more route to market over the near-term.

Even in situations where buyers have no formal alliance or corporate development relationship, the best investment ideas often come from their own R&D and sales folks who are highly familiar with peer companies and complimentary technologies. If you’re looking to position yourself with acquirers, start making inroads early and allow them to get to know you and your product over time.

3) Many fruitful M&A discussions start with a reluctant target

A lot of corporate development teams will tell stories about successful deals that began with a CEO who seemingly had no interest in selling, but who knew there was no downside (other than some time, admittedly) in taking a call.

Experienced acquirers often surprise companies with what they have to offer — whether it be in the form of valuation, providing a home for their company and employees, the ability to move quickly and offer certainty of close, our knowledge of their industry, a potential career path for them personally, etc.

It’s worth taking that call, if for no other reason than to trade information and learn about what larger players are thinking; you never know, it may turn into something years down the road.

4) A first look under the hood is much more productive when a company has its house in order

Startup advisor Firas Raouf wrote a great blog post about this on OpenView’s site several years back, detailing the steps companies should be taking well ahead of time to prepare for exit.

I’ll add that as a corporate acquirer, initial discussions around financials and customer metrics often dictate how quickly things move — regardless of the strategic value or even relationships with the management team. As acquirers, we’ve all seen “financials” that ranged from a pile of invoices, to Quickbooks cash-based accounting, to fully audited statements.

Companies should put some real thought into how readily available their basic statements and metrics are for potential acquirers.

5) It’s all about the people

Many acquirers won’t being seeking internal buy-in for pursing an investment idea and committing resources to a full diligence process without having spent at least a day or two in person with the target management team.

Early face-time is critical not only for discovery, but simply for parties to determine cultural fit, interest level, and simply whether everyone likes each other. Aside from needing to gain confidence in the eventual integrated company prospects, folks need to believe they can survive a one-to-two month diligence process. This time needs to be invested early on if things are really going to get off the ground. 

6) The right sell-side advisors can make a huge difference

This is another area where I plan to dig in deeper with future posts, but in addition to hiring the right legal counsel and financial/tax advisors (assuming conversations progress to drafting of terms/documents and diligence), selling companies should be sure to align themselves with an investment banker that knows their industry and business well.

Strategic buyers often learn about targets through investment bankers, and it’s fairly obvious when these folks are well-versed on their client’s story and interests. Spend time to find the right team who will dig deep in understanding your business and value proposition, and then spend more time jointly articulating a succinct message to approach strategic buyers with.

7) Customer case studies and references are powerful

M&A teams I’ve spoken to generally put a lot of weight in understanding what targets’ customers are saying, why they buy the product, and most importantly, why they stay with the product and keep renewing their contracts. Case studies and examples of projects with quantifiable outcomes can be very impactful early in the courting process. Have these prepared and ready to provide.

To go a step further — though this depends on your relationship with top customers or partners — you might consider offering to put the M&A team directly in touch to discuss your products and quality of service. This can be a high-level dialogue and positioned as part of scoping for a partnership or co-marketing arrangement so as not to allude to your intentions of possibly selling.

Photo by postbear eater of worlds

VP of Corporate Development

  • Thanks for this post, John. I’m excited to read your piece on leveraging biz dev for strategic exits and have a question about that: have you seen any buy-side cases where a potential m&a suitor reconsidered because they found out a company was serving one or more of their competitors? If they didn’t reconsider, did they reduce the value of the company because they figure owning it may result in the loss of revenue generated by those competitors as clients?

    I don’t know how many companies using a great vendor would immediately decide to stop using that vendor if they found out they were then owned by the competition, but obviously it happens. Thanks again.

    • john mccullough

      Hi Noel – thanks for your question. I think those scenarios definitely play out, but there is no hard and fast rule that acquirers will follow. Big software companies accept “coopetition” to some degree as it can be difficult to avoid. Sometimes partners / customers are also competitors. It’s really a case by case decision with regard to M&A – acquirers will decide throughout diligence whether the risk of losing revenue is real; if it is, there are a variety of measures to take, including lowering valuation or trying to negotiate for certain indemnities / remedies around material customers. On the flip side, as you said, many companies using great (and mission critical) products won’t give them up just because the vendor was acquired by a competitor.