Dave’s note: John Huston is founder and past manager of the 300+ member Ohio TechAngel Funds and a past Chairman of both the Angel Capital Association and the Angel Resource Institute.
By John Huston
While you are busy building your high growth venture, you may have occasionally thought about which large companies might be the ultimate buyer of your company – a buyer that could optimize your idea, customer base, and team. If you have professional angels or venture capitalists among your funding sources, you have probably been focused on your company’s sale well before they wrote their first checks.
To simplify the obvious question, you should ask: “In whose hands does my company have the greatest value?” But remember that each potential acquirer should be evaluated in terms of both their ability and their willingness to make an acceptable offer for your company.
Assessing their ability is fairly straightforward, especially if you will only take an all-cash bid. You merely need to forecast the likelihood over the next few years they will have the financial resources to be the high bidder for your venture. For publicly traded potential acquirers, reviewing their public filings regarding previous acquisitions can be quite illuminating – especially finding information about whether they have borrowed to finance past company purchases. Many large companies have a preferred template from which their deal teams rarely stray.
[Email readers, continue here…] Once you are comfortable with a potential acquirer’s ability to make a winning bid for your company, then you only need to focus on how to increase their willingness to do so. Ideally each target company has a history of consistently making acquisitions with deal terms you would accept. This means they routinely acquire strategic assets and not just financial cash flow streams, paying a premium to do so.
Let’s presume that you have identified three to five targeted bidders whose interest in acquiring your company you now need to heighten. How can you accomplish this?
The first step should be to honestly assess the allure your company might have to each targeted strategic acquirer. Then think about how your company’s daily activities are enhancing that most attractive aspect of your business in the eyes of each potential bidder. This makes it much easier to allocate your capital as you prepare for a sale of the company – since the goal is to spend it only in ways which will impress just a few companies. Cash spent on activities which do not burnish your attractiveness is cash squandered as you prepare for the sale.
Buyers, especially strategic buyers, pay premiums over book or shareholder value. That premium is your focus. And it can only be truly determined once the buyer’s wire transfer appears in your account.
When you were just commencing commercial sales and refining your business model to achieve positive cash flow, you were focusing on survival. Now, the sooner you can allocate your cash and activities toward impressing targeted strategic bidders, the sooner that beautiful wire transfer will arrive in your bank account.