Merger and Acquisition Advice For Startups

By Laura Duggan     Add your comments

When your startup is ready to sell, consider strong negotiations in a merger situation.

One great exit strategy for a new startup is to be acquired by another company who can use the product you have created. At first, this may appear to be harder in a difficult economy where companies are tightening their belts rather than expanding them. But it’s not impossible. As the founder or owner of a company negotiating a merger or acquisition there are some areas to be on the look-out for during the negotiations.

Negotiate the Terms
In a down economy, the buyer has more leverage in terms of the price as well as the terms. However, each step of the way, there is room for negotiation. For example, if you want a 10% escrow and the buyer is looking at 25%, see if you can get them to inch up a bit, perhaps to 15%. They may not be as set as you think.

Don’t Set Valuation Too Soon
Valuation is tricky, as the buyer either wants something that has a low valuation, or else something that is strategically important to their mission. It is in your interest to keep your buyer focused in the value of the merger, the great outcome that will result from joining forces. If you are totally focused on the valuation, it can send a signal to the buyer that you are desperate for the money, and then you lose your bargaining advantage.

Exclusivity Period
It may come up in negotiating that the buyer wants a long period of exclusivity for them to perform due diligence. This can hurt you, especially if you have the potential of other offers in the wing. Therefore, to protect yourself, get detailed in the terms of the letter of intent, and put milestones in the timesheet. If you are agreeing to a 90 day exclusivity, for example, there should be checkpoints at days 30 and 60, with deliverables such as a draft merger agreement, as well as price agreements. These deliverables would be tied to the exclusivity period, so that the process would no longer be exclusive if the buyer is dragging their feet.

Work with Several Buyers At Once
As long as possible, keep the negotiations open on several fronts at once. This strengthens your ability to get the best deal for your company, by being able to create the sense of competition, and up the ante. Good luck, and may your merger be a match made in heaven!

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