M&A – it ain't over till it's over

The economy is clearly slowing down and the IPO market is nonexistent.  As I have always said, this is the time to hunker down and tweak your business to get your model right.  If you are interested in exiting today, M&A continues to be the only viable path along that front.  Having been through a number of acquisitions and potential acquisitions through the years, one point I must remind you of is that any deal isn't over until its over.  On the surface, this seems so obvious.  And yes, once a term sheet is signed and a price and general terms are agreed to, you are in great shape.  But recently, through discussions with other VCs and entrepreneurs, I am hearing about more situations where strategic buyers may significantly change the deal terms after more serious due diligence or even potentially walk away from a deal.  This can be especially painful if you have spent a number of months meeting with the strategic and going through due diligence in lieu of running your business. Trust me, this happened to one of my portfolio companies last year and reasons cited can include we had a change of strategic priorities and or look at the economy, there is no way we can value you like we did when we started the deal.

While I can offer you no protection from this happening to you, all I can say is to be prepared and skeptical, be willing to walk away, and make sure that you both do enough diligence and meet with the right decision makers before you sign any term sheet and embark on the extended process.  Once the term sheet is signed, run like hell to get the deal closed because the longer a deal lingers the more opportunity there is for it not to happen.  Keep the hammer down and always have next steps and a defined timetable.  In addition, to the extent that the strategic acquirer has made other aquisitions in the past, I would try to leverage your personal network to reach out to some of the VCs or entrepreneurs involved to get a flavor for how the strategic will run their due diligence process and what doozies or surprises the strategic throw at you.  Before you start spending your money from the acquisition, remember there is a lot that can change and that probably will change so keep that in the back of your mind as you go through the process.

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This post was written by who has written 358 posts on BeyondVC.

2 Responses to “M&A – it ain't over till it's over”

  1. SJ Sep 5, 2008 at 8:35 pm #

    Not sure if you’re a Fast Company magazine reader, but if you take a quick look at Fast Company’s “Fast-50 Readers Favorites” list for 2008 (link to fastcompany.com) , you’ll hopfully find that there are numerous tech companies that are fueling innovation right here within the US and doing very well for themselves and their investors.

  2. Ryan Mettee Sep 15, 2008 at 3:32 pm #

    It aint over til’ the fatty lady sings. This has never been such a truer statement than in the current tech industry right now, especially in a recessed economy. M&A carries significantly less risk though, from the perspective of the business owner. They know what they are getting. Shareholders don’t always carry out months of due-diligence. I’d highly suggest reading John Assaraf’s new book “The Answer.” This goes great with the theme of your blog and gives you insight to evaluating entrepreneurs… link to readtheanswer.com

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