When you sell your startup, there are more exciting moments than just having a term sheet in your hand. At this point, you have chosen your dance partner and you are moving towards your future through a successful deal.
The book is co-authored by Mark Achler and Mert Iseri Exit right, Know this feeling directly. A startup Apple employee and former head of innovation at Redbox, Achler has been building and investing in tech startups since 1986. Today, he is a founding partner of MATH Venture Partners, a primary to growth-focused VC fund focused on technology companies. Iseri is a healthtech company acquired by SC Johnson in 2020, and Design for America, which became a part of the IBM Watson Foundation in 2021, co-founded SwipeSense.
“A term sheet means there is a real commitment on both sides, but there is still a long way to go,” Eckler said. “Throughout this process, from a signed term sheet to the bank to the money, there are still many ways that can either drive higher prices or screw things up.”
Once you have signed a term sheet, all parties should try to close the contract and speed up the completion of the transaction. So, what steps should you take to successfully close your acquisition agreement? Isri puts forward the most important six.
1. Decide whether you want to outsource your discussion
Ackler and Iseri recommend that the CEO lead the discussion, but they also realize that not every CEO is a key negotiator. If you don’t have the strength to negotiate or if you want to take on someone else’s responsibility in a particularly difficult conversation, then it is legal to let someone else lead the process, but if you go this route, the two will advise caution.
“If you outsource your discussions to an investment banker, you can maximize your returns, but you will also limit the confidence-building that can prevent a successful shutdown,” Ackler said.
Iseri explained that the biggest determinant of whether or not to use a banker is related to the size of the contract. If the deal you are negotiating falls below $ 100 million, using investment bankers will not guarantee it. As such, the potential payoff for bankers will not be large enough to attract A-level players.
“At that point, the lesser star talent could hit rather than help the discussion,” Iseri said. If your transaction is large enough to issue a warrant using a banker, Achler says it’s still your management, process and final discussion points as your CEO. The more you understand where your hard line is, the easier it will be to instruct your banker.
2. Hire an experienced legal team
When you are selling your company, Achler and Icer recommend hiring an experienced M&A attorney. Although their one hour time will be expensive, their insight and wisdom can cut to the point and save both your time and serious money in the long run. So, in Iseri’s conclusion, you can work with most senior attorneys on key strategic questions.
“Talk to your senior attorney ahead of time about prioritizing issues and risks,” Ackler added. “Your attorneys’ job is to manage the risk and protect you.”
However, as Eckler points out, not all risks are created equal. Some attorneys will fight equally hard for minor points like major issues. It is important to create a process with your attorney ahead of time and to create a framework for decision making to help classify and understand the level of risk of a particular item. “Learn what is valuable and material to fight for, and what is not,” Iseri said.
3. Take initiative without sitting and waiting
Most CEOs sit down and wait for the acquiring company to explain why they are interested in them, but Ackler and Iseri disagree with this general move. As they mentioned, there is a fundamental information mismatch between the larger acquiring company and you.
“Your job is to fix it,” Ackler said. “Both of you must learn everything you can about the other’s company, but you must go one step further by helping to argue why this investment makes sense to the acquiring company.”
So how did you do it? Iseri says start with corporate development, and ask questions about their strategic objectives. If you can, find the business champion and make the case for strategic impact. The bottom line is, don’t wait for them to tell you why.
“Even after a term sheet, contracts can often fall apart, especially when there is a lack of alignment in telling larger strategic stories,” Ackler said. “The key to reducing tension is a cadence of communication that includes regular conversations as part of the purchasing process.”
4. Strategically communicate with your team
Agreements are often secret. When you are meeting with your lawyers, bankers and running the deal, your team will hopefully run your business. Since you can’t stay in two places at once, Iseri says you must believe that your team holds the fort.
“There is no single right approach,” Iseri added. “We tend to make mistakes to make sure your core executive knows what you’re doing and how you’re spending your time.”
In the absence of information, it is human nature to fill in the blanks and sometimes make the worst guesses. So, the question becomes when to tell your entire team about the deal. The rule of thumb for Achler and Iseri is to keep things secret until you see the last line.
“Our recommendation is that once your signed term sheet, you should probably tell your entire team,” Achler explained. “However, privacy is important here, so you need to make sure and set expectations ahead that your team won’t share any of it.”
5. Create urgent feelings
Achler and Iseri acknowledge that with any deal, it can be difficult to keep the ball going. Hopefully, you are negotiating from a power position and ready to sell at the best time. You’re selling because you want to, not because you’re running out of money or desperate to leave.
“The journey of a contract can be frantic with activities and moments where nothing seems to be happening.” If you are the CEO, these two have said that it can feel like torture. “Stay calm, stay true to your path and be active whenever possible,” they advise.
“While your options may be limited, larger companies need to work through their processes,” Eckler said. “However, you still have some weapons in your hand.”
Remember, they both said, this is not about you. It’s about them. Given this, they suggest “creating some urgency by focusing on the rationale for the contract. The more the acquiring company believes in the rationale for the contract, the more urgent their action will be.” In addition, they will be motivated to work through the issues to maintain the completion timeline.
6. Remember that proper perseverance goes both ways
Eckler and Iseri say that every time you contact a purchasing company, see it as an opportunity to learn more about them. Now that the term sheet has been signed, due diligence from the purchasing company will begin. They are going to explore every detail of your business. “Nothing will be undiscovered, so be prepared,” they said.
“Employ your own due diligence, as well,” Iseri explains. “Now is the time to build alignment to understand their corporate decision-making framework, to prepare a mutual consolidation plan and, most importantly, to refine the rationale of the agreement.”
You just have to be more discriminating with the help you render toward other people, ”said Ackler and Iseri. In many ways, this last piece of advice reflects the spirit behind each of the six steps outlined by this pair.
“Don’t sit back and let them manage the process,” Ackler said. “Now is not the time to rest in your honor. Momentum is good, but speed alone will not stop the deal for you. “