

Ask HN: Big company looking to acquire us, I'm terrified - beingacquired

First, sorry for the anonymous account. NDA etc..<p>We're a small, boot-strapped (though fairly established) company. The major company that rules our industry is looking at acquiring or investing. We're really naive at these business aspects, we're engineers..<p>How much do you disclose on the early talks? We have a document prepared with vague but accurate graphs showing our growth, various comments about how awesome we are and our plans for product development.<p>I'm afraid of looking too keen for a sale, where I know we'd give up control but it would allow us other benefits of major growth. I feel completely lost here, I've read everything I can on HN but it's hard not knowing what to expect. Is it always this terrifying?<p>I'd love to hear any stories and advice, thanks for any input.
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bluethunder
Couple of quick points, though this is a very subjective topic so these might
or might not apply.

1\. Know that 99% of deals fall through. This one will also, except when it
won't. More importantly, the deal is only done when the cash hits the bank.
Deals are known to fall through even at very late stage. Falling through is
the norm, going through is the exception.

2\. Be open about numbers, growth etc. Be closed(vague) about strategy,
execution plan etc. You need to be open about the numbers to give them
confidence. You need to be closed about strategy, execution plan because a
huge number of deals fall through because the acquirer decides to build the
same stuff inhouse (typically prodded on by internal engineering teams)

3\. Build confidence. Talk about how this marriage will be best for both the
teams. Reserve the negotiations around cash towards the end of the deal. When
you start negotiating about cash, the deal is already done.(Except when it
isn't - see point 1). Negotiating the deal is though topic for another post.

4\. Decision making in big companies is slow and hard. The decision to acquire
your startup will need to be driven by someone internally in that company.
Find out who your 'champion' is in that company. Maintain regular contact with
him, though dont push him too much. If some time elapses without any
communication, ping him and check with him.

5\. Most deals that go through will go through quickly. The decision in most
of the deals which go through is already made. You just need to nod your way
along in such cases. In other cases there will be just one big issue that you
need to build confidence upon. If the talks get extended, it is likely that
the deal will not go through.

6\. The Zen Rule for Deals: Assume that the deal will NOT go through and plan
your startup accordingly. The person who is willing to walk away is the
stronger person in any deal. Detachment will allow you to negotiate from a
position of strength.

~~~
beingacquired
This is extremely good information, thank you. We have been careful in how to
describe to them what our long terms goals are without being specific what
technology we have up our sleeves. It's been great reading HN for so long, I
feel like I have the basics down - be calm, expect nothing, carry on as usual.
But cross fingers.

>Negotiating the deal is though topic for another post.

I would like to read this post :)

~~~
bluethunder
Thanks for your kind comments.

Im not sure if I would be able to post about negotiations any time soon. Drop
me a line when you enter negotiations and if you want an outside perspective.
I will be happy to help. You can reach me through the feedback form of the
site in my profile.

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daimyoyo
Talk to the founders of companies in your sector who've been acquired
recently. Find out who represented them. Then hire that firm. Selling a
company is like going to court. You can do it yourself, but when the other
side has trained professionals working for them, it makes sense to have the
same level of expertise on your side.

~~~
beingacquired
Thanks, this is great advice. We know we'll need a lawyer very soon and I like
the idea of working with someone with a history of working with other small
tech businesses. It's a comforting thought!

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jacquesm
Whatever you do, be willing to walk away from the deal if you don't feel
comfortable with the terms. That changes you from negotiating from a weak
position to negotiating from a strong position all by itself.

Remind yourself of this: The really bad deals are the ones that you do and
regret, those are far worse than the ones that you don't and regret.

Do not negotiate in person during the final phase, get an experienced M&A
lawyer to be your front during the negotiations, if you can't afford that then
get someone you know that is very well off and has done these kind of
negotiations in the past. You are very strongly emotionally tied to the deal
and likely to be read like a book by the party on the other side of the table.
If you are not an experienced poker player, don't sit down at the table.

Don't decide things 'on the spot' or under pressure, always think them over.

Much good luck! I hope it works out for you and that you will get out of it
what you want, beware of stock deals, lock-ins, non-competes, performance
clauses and a hundred other things that might come your way, see 'experienced
M&A lawyer' above. Oh, and pay your own laywer!!! Never rely on legal advice
by the other party.

~~~
hga
Very good point on the final negotiations. While my father isn't a lawyer
(although he did do some law in the Navy), he has earned quite a bit of well
deserved money in that negotiating role for the sorts of reasons you've
outlined, as well as just taking on a lot of the burden, allowing the owner(s)
more time to keep their business going.

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zachallaun
Lawyer, lawyer, lawyer.

The way you negotiate and approach any deal is going to vary drastically based
upon your current situation. As you're not in a position to give away
confidential information on HN, you need to speak to someone to whom such
information _can_ be given.

I don't know where you are located, but I am under the impression that pretty
much every investing hub has lawyers with a focus on startups. I am confident
that they will know the ins and outs of acquisitions, and will be able to
provide you with advice as to best navigate the deal.

------
mikebo
Watch this great talk by entrepreneur Hadi Partovi on this very subject:
[http://www.seattle20.com/tv/clip/StartupDay-2010-Exit-
Strate...](http://www.seattle20.com/tv/clip/StartupDay-2010-Exit-Strategies-
for-Startups-by-Hadi-Partovi.aspx)

~~~
beingacquired
Probably the most sobering, necessary talk I needed right now. Thanks!

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erikb
Here are already a lot of tips about the local/tactical situation dealing with
maybe beeing acquired. But what if it falls through (like it happens way too
often)? Was it just this? Can we use this situation to get an advantage, if we
get a deal or not?

There is where strategy comes in! Yes, you always have to look for
alternatives to use this situation for your company.

For that you need to find out WHY they want to acquire you. For example:
Google wants to acquire you, because they want to be in your market
([http://bits.blogs.nytimes.com/2010/12/07/google-executive-
no...](http://bits.blogs.nytimes.com/2010/12/07/google-executive-no-time-to-
build-so-we-buy/?ref=technology), can't find the HN thread for this), then you
can ask googles opponents, like facebook, yahoo, microsoft, if they are
interested in a deal. That will increase the money you get from anyone and
also your chance of beeing acquired.

Because I have no own experience in this matter I will not lead you in the
wrong direction by giving you further tips. Maybe other people here can help
to give a more strategic view of the situation. How else can an aquisition
attempt be leveraged?

Other resources: <http://venturehacks.com/archives#closing>
<http://venturehacks.com/articles/diligence>
<http://venturehacks.com/archives> <\- Actually just reading most of it is
healthy itself for a startup who knows nothing about money things.

------
run4yourlives
You don't seem to indicate what I would figure to be a major concern for you
right now: Do you or do you not _want_ to sell?

I think you should come to this conclusion within your team before doing
anything else. Considering you personally sound pretty conflicted, you're
going to have a tough time "winning" this challenge if each one of you has
different ideas of the ideal outcome.

Once you understand that - that is, the ideal outcome - work towards that.
Don't get sidelined by big companies and big money. As bluethunder says 99.9%
of all deals never happen, so they aren't worth putting more than .1% of your
daily effort into (figuratively speaking here, of course).

I'd say this as well: Do not for a second believe that being acquired is some
sort of growth mechanism for your dreams. It is by definition the exact
opposite; the death of your company. No matter what, the company you have, its
plans, culture, desires and particulars will cease to exist. This will happen
despite everyone's promises and best intentions.

What will exist may or may not be something you can live with, but it won't be
the thing you are living right now.

------
petercooper
I've been in this situation before. I did it all myself - it worked out OK. In
hindsight, though, I'd advise a lawyer if you can possibly afford one as it
could have gone horribly wrong ;-) (Others here have given better advice on
that part.)

If you decide to go it alone anyway, you must first get a good feel for their
true intent. It's like dating. Don't give it all up or get heavy on the first
date. Keep things cordial and don't act secretive or defensive, but spend time
talking to them and feel out what they're gunning for. You'll need some time
after to reflect on things they said or impressions you got from their manner.
The more people on your side who share in the talks, the better.

Like someone can detect a shady date even if they don't overtly do anything
nasty, you should be able to sniff out bad intentions from the buyer. If
they're just digging for information or yanking your chain, unless they're
_really_ smooth manipulators, you should get a bad feeling in your gut after
the first or second serious talk.

------
fleaflicker
I struggled with this too. Just be honest--don't hide anything and don't
pretend to be something you're not. If you sell they'll find out anyway.

Negotiating is all about the ability to walk away. Focus on your product. If a
sale doesn't happen you shouldn't be crushed. Just continue growing as you
planned.

~~~
enjo
+1. On more than one occasion I've seen startups flounder around during
acquisition negotitions without actually pushing forward. 6 months later
they're in trouble. I've even seen big companies use these negotiations as a
stalling tactic.

Don't let it happen. Keep your foot on the gas, and make them put-up or shut-
up. Get a letter of intent straight away. Due diligence isn't an excuse to
stall. Negotiate a schedule and stick to it. If they can't meet their end
(without obvious good reasons) forget it and move on.

------
kondro
The biggest problem with getting lawyers involved early-on is that it's their
purview to protect your interests above all else, including an equitable,
workable deal.

It has been my experience that using lawyers too early will put ridiculous
clauses in contracts that don't necessarily make good commercial sense or are
even in the spirit of whatever negotiations you are trying to make.

Additionally, lawyers are expensive, especially early on.

My advice: sit down, talk with the other side, decide what you both want to
get out of the deal, write a heads of agreement whilst reserving your rights
(they aren't binding after all) so you both have documentation to ensure you
are all on the same page then, and only then, get the lawyers involved to
draft up an sale document based on your heads of agreement.

Lawyers are lawyers, not negotiators or entrepreneurs. Ultimately, they aren't
the best people to represent you when it comes to working out what you are
willing to accept to part with your baby.

~~~
scottru
+1 for the key message here. Lawyers aren't negotiators, and you have to
remember _all the time_ that they work for you in this negotiation, not the
other way around. They will give you lots of advice, and you should think of
it as such, and ask questions about the real risk you might be taking, and
make decisions accordingly.

I've watched friends have sales fall through because they didn't trust their
own judgment when faced with their lawyer's thoughts. Apply the same
confidence you have (or fake) for building your product to the redlines from
your lawyers.

~~~
arethuza
One that thing that can also cause problems is that in many situations the
companies lawyers are acting for the company not the individual interests of
the founders - if you have investors or a situation where the founders have
different equity stakes then it can get messy as a particular deal may favor
some people and not others.

I'd also recommend doing a _lot_ research into the acquiring company -
particularly if you are being paid in stack rather than cash. I know from
bitter experience what happens when you get acquired by a company that looked
healthy during the acquisition process then whose stock plummeted during the
lock in period :-|

------
davi
Sometimes when something really big and good starts to happen, even if it's
something you've been working hard to achieve, it can be a bit hard to
understand. Getting used to the idea that yes, you really did it, might be a
good step to helping yourself calm down and gracefully surf this newest big
wave coming at you.

You worked for it, now nail it!

------
brk
Hard to give good advice from just the details in your question.

I guess the most important thing to think about is, do you want to be
acquired? And if so, what would it take to make you sell? Then, does that
number seem at all justifiable from your current trajectory?

~~~
beingacquired
Yes, we want to be acquired. We're excited to be able to take our skills to
where we can compete on an international level - it's not something we feel we
have the ability to do by ourselves and we've not met anyone who we thought
would be a good fit to come in and do it with us, I think we're too small and
you rarely meet people who will drop everything to be part of a 'maybe', when
you can't offer massive stock options or salary.

Perhaps it's part of being what we are - loving what we do and being so proud
of what we do that we're happy to work hard and see a few customers come in
and make us profitable, but being afraid to really build something huge. I
don't think I personally have it in me to do that, but I'm up for the idea of
working with someone who is. We can only trust in this big company that they
believe in what we have, and even if it gets destroyed or forgotten at least
we gave it a chance.

------
rajat
Get a lawyer. Not someone small that you've been using regularly for the
little stuff who's never done this before, but someone that has experience. Be
careful about this; there's a lot of dummies that put on a show of competence.

Same thing with a negotiator. Are you in a city that has a lot of startup
activity? Reach out to a good COO type who can help you conduct the
negotiations. How much they get involved will obviously depend on the amount
of money we're talking about. It's just not a good idea to learn about
negotiations by doing in circumstances like this.

Be careful who you pick. Money turns heads unfortunately, and a lot of
otherwise sensible people become complete pricks.

------
thejo
David Cohen of TechStars has written a good post about this -

[http://www.davidgcohen.com/2010/06/18/you-have-
acquisition-i...](http://www.davidgcohen.com/2010/06/18/you-have-acquisition-
interest-now-what/)

~~~
beingacquired
Very interesting, thank you.

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jayzee
Congrats. I can imagine a hell worse than being acquired!:)

------
Mz
I have zero experience with this. But I learned a lot about communicating
effectively under pressure while very ill and being jerked around by doctors.
If I got all emotional, it was just another excuse to dismiss my very real
concerns that I might die if they didn't treat me. I had to keep a very cool
head at a time when that was enormously challenging due to pain, fear, how
sick I was, etc. I found that doing a few minutes of "meditating" just
beforehand -- breathe deeply, clear your mind of prejudices, that sort of
thing -- was one of the most effective things I could do.

I would also recommend you pick up a copy of "Getting to Yes" if you aren't
familiar with it. It is a quick read and research-based. A meatier book is
"The Mind and Heart of the Negotiator". [http://www.amazon.com/Mind-Heart-
Negotiator-Leigh-Thompson/d...](http://www.amazon.com/Mind-Heart-Negotiator-
Leigh-Thompson/dp/0131407384) But it might be a bit late for that. (EDIT: Both
were required texts in a class I had on "Negotiation and Conflict
Management".)

Good luck.

