Last week the WSJ published an article – Startups Scope Out Suitors – which highlighted the trend of start-ups running out of money and throwing themselves at bigger brothers. “We have seen a tremendous amount of incoming deals, said Sean Aggarwai, CEO of Trulia, an online real-estate company. He confirmed some 30 deals had past his desk in the last 12 months.
According to Dow Jones VentureSource seed-financing increased by 46% from 2009 to 2013 but follow-on financing increased only 14% during this period. That’s tough on early stage companies
However as an acquirer you need to be careful you are assessing companies you want to buy and not just because it’s available! Smadar Levi, CFO of MyHeritage makes my point; “Usually, the best opportunities are the ones we’re pursuing and not the other way around.”
So how do you ensure you get in front of companies that are potentially attractive to you? Here is a simple 10-step plan that we use with clients as part of our Acquisitions Approvals Model:
10 Step Plan
- Be crystal clear on your positioning. Know your market segments that are the core of your growth strategy. You can build it or buy it. Acquisitions are only a tool for executing strategy.
- Define the characteristics of target companies. Include as many details as possible. NAICS code, revenue, employee numbers, geography, profit minimum, activities, age of company, ideal customer profiles, business model, growth metrics, IPR requirements.
- Do basic research to make sure your dream targets exist.
- Assuming targets exist, articulate a definitive target profile based on 2 above, and add one contact person for leads. This is your Acquisition Profile. You might have several of them for different markets.
- Distribute this Profile internally to appropriate managers and externally to your advisors (clearly if it’s a confidential diversification strategy, scratch the distribution idea).
- Imagine how these types of targets would be integrated into your business (This will help refine your characteristics needed).
- Sign off priority list of targets.
- Collate basic facts on the target.
- Choose the acquisition team that will meet, assess and own this acquisition.
- Prepare your engagement strategy and contact target #1.