Entrepreneurs are good at a lot of things – raising money, developing disruptive products – but many aren't as savvy when it comes to selling their company. Because acquisitions tend to be private, details rarely become public. That lack of insight makes it harder for other business owners to negotiate their own exits. Fortunately, some sellers are willing to share their acquisition experiences, including Carol Leaman, president and CEO of Axonify, a technology company that helps employees learn tasks through a three-minute gamified experience. Leaman got her start at a large accounting firm working on mergers and acquisitions and then branched out on her own to start and then sell three technology companies. She used the proceeds from the sale of her last business to buy Axonify. Here's what she's learned about navigating an acquisition.
1. Get A Good Lawyer
Leaman's first piece of advice? “Make sure you have really good legal advice." While that may seem like an odd place to start, if every word of a contract is not carefully studied then the seller could lose out on a big pay day. That doesn't mean paying top dollar for a lawyer, she says, but it doesn't mean cheaping out either. Find someone who has experience with buying and selling a business. “You want someone who's completely on the ball and has done this a few times," she says. Her lawyer saved her during the sale of her last business, PostRank, to Google in 2011. Google has a very specific way of buying companies, she says, and they put a detailed set of terms in a letter of intent. There were things in that letter that she had never seen before. “He was able to explain what it meant and the implications," she says. “I wasn't sure how to interpret certain clauses and there was a lot of money involved. If I had a less competent lawyer, some things could have slid through."
2. Understand The Buyer's Company Culture
Leaman learned this lesson the hard way. When she sold her first business, Fakespace Systems Inc. in 2004, she didn't think much about aligning her company's corporate culture with the acquiring operation's culture. Someone wanted to buy her business, she was interested in selling it and that was it. That was a mistake. When startups are sold, the acquirer usually wants the seller's staff to come work for them. They also often want the company founder to help with the transition for a year. If cultures don't align, integrating the newly purchased business into the buyer's company can be incredibly difficult for everyone. This is what happened with Leaman. The acquiring company's CEO took a top-down approach to management, while she was more inclusive and open, she says. The two styles didn't mesh and it made for a rocky union. “His employees were coming to me hoping for a loosening of the command and control and my employees were saying 'what the hell did you just do to us?'" Leaman stayed on for a year, as per her contract, but 30 percent of her employees ended up leaving three months after she departed. “It was emotionally difficulty to me to see how the disparities in the culture caused so much pain all the way around." In her subsequent sales, she's made sure to interview the buyer's employees and have a much more open discussion about culture with the acquirer. While she hasn't walked away from a deal, if she had any culture-related concerns with a company, she wouldn't sell.
3. Don't Tell Staff Too Soon
Acquisitions are exciting, so it's natural for CEOs to want to share the good news with staff, especially in a startup where employees tends to be close. But don't reveal the details too early, Leaman says. When her first company was being purchased she told her executive team two months before the sale was complete. One of her vice-presidents knew the acquiring company's CEO and didn't like him. He started telling the other vice-presidents about the other company and “it went through the ranks," she says. “It created a bunch of question marks that weren't healthy for the other vice-presidents to have." The best time to tell your employees is when the acquiring company is ready to offer new letters of employment, she says. They'll also want to interview the staff to learn more about them. This usually happens right around the time of the sale. Executives may have to find out earlier than that, though. She told her vice-presidents about the sale when she did because the buyer wanted to interview the leadership, but two months was too early, she says. She would have tried to push those interviews off until a month before the sale's completion.
4. Be Realistic About Money
Just like with a house, sellers tend to overvalue their company, while buyers tend to underprice it. If the gap between what the seller wants and what buyer is willing to pay is too high, the deal will never happen. “If they make a $10 million offer, but you think your business is worth $150 million, you won't bridge that gap," Leaman says. When it's come time to price her companies, she's always sought out multiple reference points to help determine valuation. She's looked at what other companies have sold for and she's talked to advisors and other people who know her business about what they think she should value her business at. She let's the buyer make the first offer and then she goes from there. That gives her some insight into what the acquirer thinks about her company and, if their offer is too low, she'll stop the conversation.
5. Trust Your Gut
Finally, Leaman has learned to trust her gut, which is something she didn't do when she sold her first business. There were red flags the acquiring company's CEO wasn't going to mesh with her staff, but she ultimately ignored them. When it comes to a sale trusting yourself is hard to do – many entrepreneurs love the idea of selling their company. But you have to be true to yourself. “Look at it as impartially as possible," she says. “If the decision isn't an easy one to make, that's your gut telling you to walk way. Trust it or it only becomes harder and harder."
