
Ask HN: Acquisition interest by a competitor, please share your advice - kniva
I&#x27;m a single founder of a B2B products startup that is bootstrapped and profitable. Within two years of existence, it now generates $250K annual revenue, and the satisfaction levels from our customers are surging. We are venturing into the SaaS market with a novelty product across multiple verticals (Supply Chain, Logistics, Health-care, etc.) which would offer better flexibility for customers, both technically and financially. Things are going well, and we are growing organically.<p>I have recently been approached by a competitor with interest to acquire the startup. Before that, I was contacted by two other interested parties but didn&#x27;t consider it at all. Although I view this as a hint that we are doing things no too bad, I&#x27;m not convinced that acquisition is the way forward for us.<p>Would you consider acquisition over let&#x27;s say, external investment or staying small and doing it all by yourself? How can I safeguard my startup in case the acquirer&#x27;s motivation is only to clear up space and not to help develop it further?
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davismwfl
Having had a couple of companies acquired now, Be cautious in how you deal
with any competitor that has interest in acquiring you. Not to say I wouldn't
do it, just be careful, more careful the bigger the competitor is.

The fact you are getting interest can be a few likely reasons, the most
optimistic is you have hit on a real need and niche and people want to get in
on it now. Another, competitors see you gaining some traction and they want to
buy the traction not the product. And still yet, it could be they are wanting
to kick the tires and learn what you are doing to walk away and repeat what
they like. Of course there are other scenarios too, but just some points of
interest. As for safeguarding against what a competitor wants to do all you
can do is ask and get a feel for their intent, if you get to the point of due
diligence you'll pick up on it quickly by paying attention to what they care
about most. If they spend 80% of the time on customers and financials it is
fairly obvious they are likely going to ditch the product, if it is more
balanced than so will be their approach.

Only you can decide what is best and what their intent is since you are
directly involved. But I'd always talk to people, if nothing else you can
learn something from them as much as they learn from you. Be humble, and don't
try and be something you are not (advice I wish I'd listened to on my first
sale), e.g. if this is your first time admit it, there is no weakness in that
because it will be obvious to everyone anyway. And if you are humble and
cautious it will actually give you good will in the transaction if you move
forward.

As far as acquired vs investment, it is really a personal decision again. Do
what you want to do. I'd think that being acquired even at a decent multiple
for a product doing 250k/year run rate you are still going to take home less
than a million dollars most likely. Usually that is the first rude awakening
to most people, they think they'll get a 10x or higher multiple when in
reality most M&A for small business ends in far less than that, and many times
winds up in an asset purchase agreement and not a stock purchase to limit
liabilities. There are exceptions of course, and if your growth is off the
charts then you can argue for a much better deal. But in the end, it has to
boil down to what do you want to do? Grow it or sell it and get a nice start
on savings?

* edit: word clarification

~~~
kniva
Thank you for the advice. I've witnessed the business growing up on its own
because the products are far superior to all others on the market. It's one of
those things that happened unexpectedly, and I jumped in when things were on
the up already.

I want to see the business thriving and wouldn't consider a buyout for less
than a million because that would be foolish. I do, however, need a new
direction to accelerate our growth.

~~~
davismwfl
You're welcome. Personally, I used a couple of people that approached me as
validation I was on the right track. I spoke with them about the market and
discussed basic terms and ideas but I never intended to sell or partner with
them (but wasn't against it either), I just wanted to get a read on the
situation and to practice and learn. You might want to try the same, keep an
open mind but use it more as a learning opportunity to see. Who knows too,
maybe they surprise you. Just keep an eye out for red flags. For example, I
have seen founders fall for it (and I almost did too), where you get a verbal
or even a LOI for some large amount, pending due diligence of course. But in
reality they are intentionally overshooting it just to get you into due
diligence so they can learn what they can and then either they back out and
site some deficiency in the due diligence or they low ball and say they'll
only close at 25% or some crazy low number based on their findings.

This is why if they are quite a bit larger there has to be a breakup fee,
something reasonable to cover your expenses, the extra time & money you are
spending on accountants, legal etc. Plus it should be just expensive enough
that it makes them want to complete the deal at a fair price.

Besides going through this process myself a couple of times, I've also been
hired by acquiring firms to perform the due diligence on smaller companies so
that has given me some awesome insight that I wish I would've had before.

No matter what you do, good luck and I wish you the best!

