Universal #protip: Learn from smart people whenever you can!

That’s why I like to pick the brain of fellow partner at Atlanta Ventures, A.T. Gimbel, every chance I get.

(His Substack, Startup Strategies, is excellent! Check out this one on what a term sheet can tell you about an investor.)

I’ve shared acquisition advice before like insider insights (that you may not expect), how to get top dollar for your company, and how to make the most of the opportunity post-acquisition.

When A.T. and I chatted about acquisitions, I learned even more!

Not only does A.T. have a front row seat on the startup side, he has been on the “buy” side of the acquisition process and done merger and acquisition (M&A) due diligence.

Here are 6 *more* strategies — inspired by A.T. 🙏🙏🙏 — that drive a successful acquisition, especially during negotiation!

Not thinking about an exit yet? I’ve included #protips on how these strategies apply across Startupland.

1. How Flexible Is The Price?

Strategics (a company acquiring you as a value-add product, because of your similar customer, or other strategic alignment) are more flexible on price than private equity (PE) firms.

Strategics want you for you.

A PE firm’s whole business strategy is around optimizing financials so price matters a lot.

You can still use normal leverage and negotiating strategies with both but be aware of the difference in perspectives and motivations.

Related — know if you’re a rounding error. If you’re selling to a multi-billion dollar company, the difference between $40M and $50M is immaterial. But to you and your team, that’s life changing.

Conversely, if you’re selling to a midsized startup, an extra $10 milly is probably meaningful to them.

#PROTIP
Always understand what the other party cares about and is measured on. Applies to your customers too!

2. Avoid Surprises

As tempting as it is to keep your company perfect and rosy, it’s best to disclose any potential issues before signing the letter of intent (LOI).

Negotiate hard at the LOI stage when you have the most leverage. After the LOI is signed, the price rarely goes up but often goes down.

(Remember — the acquiring company likely has a team of M&A experts, who know exactly what to look for and do negotiations all the time.)

You don’t have to share all the gory details, but if you don’t disclose meaningful items before the LOI, they will surface during due diligence, and they will be used to drop the price.

Examples:

• a line of credit

• messiness on the cap table

• upcoming customer churn

• contracts missing important terms

• unusual employee agreements

None of these are dealbreakers, don’t freak out. Just make sure they are mentioned (ideally in writing) prior to the LOI so the “big guys” can’t bring them up later as a reason to discount your company!

#PROTIP
True for any negotiation, including customer contracts or employee job offer. Surprises kill trust. Proactive discussion builds trust and mitigates issues!

3. Have A “Bad Guy” That’s Not You

A broker, legal counsel, or someone who will not be around after the deal is done is a great person to be the designated “bad cop.”

You will be working with this group after the deal so you want to stay on good terms (being nice matters!) while driving the best deal.

Always negotiate — even if you don’t love it. You owe it to yourself and your team to get the best price and terms.

#PROTIP
I often see this in startup leadership too. The COO, CFO or other exec tends to say “no” or implement hard decisions while the CEO focuses on vision and building relationships and alignment. Sometimes it is flipped if the CEO is a very challenging personality. Another exec will be the “good cop” to balance.

4. Make Acquisition-Savvy Friends

Get someone on your side who knows the insider strategies.

Make sure they actually know! (A bad consultant is worse than none at all. And def doesn’t need to be a consultant.)

I’d start with:

• Other founders, especially with exits (good or bad)

• Experienced startup lawyers

• Friends who have done M&A at large companies or consulting firms

• VCs or investors with M&A experience

Always talk 1:1. What’s shared publicly may not be the whole story.

Develop enough relationships so you can have a few folks on speed-dial for quickly evolving negotiations. (Phone a friend - acquisition edition!)

Everyone will have a different lens based on their personal experience. Understand their bias, get several perspectives if you can, and always calibrate with your own intuition and judgement.

#PROTIP
Learning from people who have gone through it or see the inside of a lot of businesses is a great strategy across every area of startups!

5. Don’t Get Split Up

It’s a common strategy for the “big guy” to try to separate a zebra from the herd.

They call you and your co-founder separately and ask you each what the valuation is. And it’s urgent!!!!! So you don’t have time to talk and align. 😉

(I have literally heard this exact story from a founder during a fundraise.)

Or, they tell you that they talked to your lawyer/co-founder/childhood friend who said XYZ while you weren’t there.

Or they want to “hop on a call” even though your legal counsel isn’t available.

Or…any other way to split people up to get the best terms!

6. Negotiate the Full Picture

Always negotiate all the terms in full.

Don’t get dragged down a rabbit hole that doesn’t matter or let someone talk about one part of the contract (or a “hypothetical” contract) without seeing the whole thing.

Certain terms may or may not matter depending on how the whole contract is structured.

Examples:

• Price. Is it a stock or cash offer? A lower price paid in cash might be better than a higher price that’s stock only.

• 4 Year Earn-Out (aka you have to stay for 4 years before you get paid). Is 90% of the payout in year 4? Or is 90% after year 1? Big difference.

• Earn-Out - Part 2. No amount of $ could make you work at a big company? Then don’t worry about the earn out!

See how the full picture makes a huge impact on the details of the negotiation?

Don’t get distracted by one-off items. Get the entire offer before talking specifics!

“It really depends (on the full offer),” is a go-to phrase.

#PROTIP
Knowing the strategy helps prevent it! Get clear on what matters to you — and what matters to other stakeholders like investors or co-founders...especially if you care about different things.

Being acquired can be an amazing outcome for a startup!

It can also be stressful and you want to make the most of the opportunity.

There will always be learnings along the way and things you wish you did differently, but learning from others and being prepared makes a big difference!

Good luck and feel free to add me to your “Phone-A-Friend” list. 😉

What other advice do you have on acquisitions, negotiations, or other dealmaking?? Do you agree or disagree with these tips?