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How to navigate mergers and acquisitions as a small business or startup
March, 17th 2016

Mergers and acquisitions are relatively common in the business world, and they’re becoming increasingly prevalent in the tech world and among startups. We often hear about mergers and acquisitions between large and well-known companies, but there are plenty of these scenarios happening among smaller and less noteworthy startups and small businesses as well.

Many startups may always operate with the idea they’d like to be bought by a larger company, and while this can be a likely scenario, it’s important to put your focus on creating a business that will hold real value for a potential buyer.

Along with building a company that someone will want to buy, below are some top tips for successfully navigating the world of M&As as a small business or startup:

Always Keep Good Records

Startups and small businesses may not always put their focus on detailed record keeping, and that can come back and haunt them if they’re in the midst of an M&A deal. Most companies that are going to buy smaller startups tackle the situation in a systematic, regimented way that requires access to the detailed records they’re going to want to see.

If you’re diligent from the start of your business as far as the collection and maintenance of data relevant to a possible merger situation, you’ll be prepared if it does happen.

The maintenance of proper data and records can derail a deal if not done correctly.

Get Your Affairs In Order

One of the biggest problems many startups face as they’re ready to make a deal is that they’re disorganized or messy in their workflows. This relates a bit to the first tip on this list, and it’s important to emphasise.

Startups often operate with a fly-by-the-seat-of-your-pants approach, and that’s what fosters the innovation that makes them successful, but this can prove problematic during the acquisition process.

Along with making sure your records are in order, it’s a good time to setup a virtual data room. You can organize everything in a convenient, easily accessible way. If you go into the selling process already having a data room set up, potential buyers are going to see you as a more compelling prospect.

If you’ve got your ducks in a row, so to speak, and you’ve set everything up in a data room, potential buyers can start the process of doing their due diligence more seamlessly, and you’ll save everyone involved a lot of time and difficulty.

Put Effort Into Maintaining a Sense of Credibility

You always want buyers to feel as if you’re a credible startup with a positive reputation, and this isn’t built overnight. Before ever really launching the idea of looking for a buyer, put a significant amount of attention on building your reputation and your credibility.

What may seem like a minor issue, such as an angry former employee, may come back and pose a big problem during M&As. Rather than facing it when it could be too late, deal with it early on.
If you’re consistently building your company so as to create value for a potential buyer, then it’s easier to give the idea of credibility the attention it deserves in a startup.

Consider Whether Or Not the Time is Right To Sell

Startups are always focusing their efforts on raising capital to keep their business afloat, and there comes a time when you have to decide between raising another round of revenue, or opting to sell.

If your startup doesn’t currently have the infrastructure or resources needed to move to the next level, it may be time to get out quickly, which is when you’re likely to start courting the idea of an acquisition.

Get the Word Out

If you’ve done some soul-searching on your startup and feel it’s time to sell, you’re obviously going to be on the lookout for the best possible deal, which may likely come from word-of-mouth referrals. Talk to people in your industry, and professionals who could know sellers who may be interested, at the right price. The more you can spread the word you’re looking to sell your startup, the more potential buyers you may have, which will naturally help you drive prices up.

Determine Your Minimum Requirements

If you sell your startup, there are going to be a lot of factors that are part of the equation. Buyers may have varying ideas not only regarding issues like sale price, but also which employees they’ll keep, or other operational issues.

It’s important for everyone to be on the same page with the parameters you’re willing to accept before starting the M&A process.

There needs to be minimum factors of acceptability already put in place and agreed upon across the organization.

Respect Advisors’ Input But Retain A Sense of Control

There are certain advisors you should certainly have on your side if you’re even contemplating a merger or acquisition, and one of those is a lawyer with experience in this area, particularly when it comes to startups.

It can be a challenge to navigate a merger or acquisition, so it’s prudent to heed the input of advisors, as long as they’re experienced.

At the same time, don’t bring so many people into the mix that you lose control in the process.

Many startup leaders create an M&A internal team to help them reign in the control during a deal-making process and ensure they’re aware of everything that’s happening in a situation that can have a lot of intricate and sometimes invisible moving parts.

This team can be in addition to your outside advisors, so you’re assured you’re comfortable with everything as it’s happening in the deal.

The Final Word
Many startups are created with the ultimate goal of being part of an M&A situation. Whether you’re in the initial stages of building a valuable company, or you’re well along in the process, the above tips can give you a firm foundation for a more fruitful and seamless situation.

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