Three First Steps on the Path to Acquisition

This article is written by Epic Presence.

As your SaaS company starts to grow, your success will get noticed. You may receive some offers for purchase or invitations to discuss a merger with other companies in your field. This is a huge moment for any founder. It can validate all of the work you have done to build a company over the past few years. 

However, there’s a big difference between companies noticing your startup and actually falling down the merger and acquisition (M&A) rabbit hole. Once the process starts to move forward, it’s easy to get overwhelmed if you aren’t prepared. Follow these steps to make sure you find the right buyer and advocate for your needs as the acquired company.

Prepare to Market Your Business

Even before you take steps to meet with investors, you can start to prepare your SaaS company for a sale. Take steps internally to organize your documents and sort them in a way that is easier for outside lawyers and due diligence experts to review. 

“Once you’re at product-market fit, go to a lawyer who’s involved in M&A and say, ‘what do I need to do to prep the company for sale?’” Patrick Campbell, chief strategy officer at Paddle and ProfitWell founder and CEO, says on our SaaS Revolution Show. “What he or she will tell you is basically to get your operating docs in order, form PDFs and put them all together in files.”

The messier your documents, the more you will have to scramble to organize everything and the more you will likely have to pay a lawyer to work through it, Campbell explains. If you know you might someday sell, prepare your documents beforehand so you are ready when approached for an acquisition. 

“Since every company transaction is a unique transaction, the requirements regarding the necessary documents are constantly changing,” says Timo Bey, head of investment at Capacura and founder of Startupfinanzen.de. “For this reason, the M&A advisor typically works with the start-up to develop a data requirements list for the relevant documents. These include commercial numbers, tax, legal and financial facts, marketing documents, as well as sustainability, IT licenses and patents.” 

You may have to pull additional documents when the acquisition process starts, but keeping a baseline of organized information will save all parties time and stress.

Value Different Companies Internally

As you start to make your business ready for sale, you may notice that there are multiple buyers who at least want to have a conversation with you about striking a deal. You need a system in place to evaluate these buyers and what the purchase would mean for your company and your future. 

“If you have a healthy SaaS business, it’s likely that you are receiving a bunch of cold calls and emails,” says Ben Murray at The SaaS CFO. “You want to partner with a firm that would be a good fit for you and your company.”

Murray includes a list of questions to consider as you evaluate buyers. Consider factors like whether they know your specific market niche, how the buyer works with portfolio companies and their role for your team after the purchase. 

When Campbell and his team were approached by Paddle, he needed to evaluate the type of buyer they would be. He looked at different potential buyers in his niche (even those he had never talked to) to create a process to compare them.

“Take all the potential acquirers and ask what’s the value you’d sell to them,” he says. “There are certain folks where the stock is liquid and there are other folks where you could not pay us enough to go work there. [The evaluation system] almost spits out an expected value formula because you can add culture fit or perceived culture fit and those types of things and then there’s a convergence around who the potential parties are.”

For example, if you perceive that a company has a poor culture or would be difficult to work with, you significantly increase the value at which you would sell to them. There is always a number for everything, you just keep adding to the price until the acquisition would be worth it. You would give a company with a good work culture a more favorable purchase price for your business.

Get Ready to Negotiate Everything

Setting internal valuations and goals for your business will make you more prepared as you start to work with your buyer. You can develop a list of non-negotiable requirements and expectations for the acquisition. Make sure your team is on the same page about what is acceptable in this process. 

“Every stage of the startup acquisition process – and I mean every stage – is a negotiation,” says entrepreneur Andrew Gazdecki, founder and CEO at MicroAcquire. “From the exclusivity period to the purchase price, keep your goals in mind and don’t give way unless you’re absolutely comfortable with doing so.”

If you are not a strong negotiator — and you lack a representative on your team who is — you may want to invest in yourself to build these skills. Hire a coach or work with a consultant who can guide you to become a strong negotiator. Then you can speak confidently at the acquisition table. 

Many M&A negotiations can get messy and the timing can throw you off if you aren’t careful. Campbell says his acquisition by Paddle occurred in the awkward days between Christmas and New Year’s, which meant his team had to meet through the holidays to reach an agreement. However, the right preparation can help you make your company appealing while giving you the power to negotiate a fair price with the right company. 

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