Creating an Acquisition Strategy: An entrepreneurs guide to pre-acquisition processes

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Contents:
  1. The Quick and Dirty Guide to Creating a Winning Pitch Deck
  2. How the best acquirers excel at integration
  3. Pre-transaction success factors
  4. Post-transaction success factors
  5. 7 Steps to Formulating a Successful Exit Strategy

The Quick and Dirty Guide to Creating a Winning Pitch Deck

Every potential buyer wants to understand the motivation of the seller. Why do you want to exit? What are the shareholders hoping to achieve? Having aligned motives makes for a smooth negotiation process and harmonious transition.


  • Ground integration in the objectives of the deal.
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Research the acquisitions of any competitors or other companies in your sector to help determine realistic fundraising benchmarks. Identify the active acquirers as well as the companies with complementary offerings that might make strong merger candidates. Research their acquisition history, the reasons behind the deals, and determine if they meet your acquisition criteria.

A solid understanding of market dynamics is a key success factor. Some companies become too focused on the day-to-day that they forget to ask questions that will help them clarify their vision for the company beyond fundraising and launch. The board of directors can help frame the big picture and figure out where the company fits into the market. Startups looking to exit should focus on revenue growth opportunities. Gaining traction within a market is one way to show that the innovation has potential.

As a startup grows, these opportunities can be developed into an actionable strategy with the support of their board and shareholders. If a company raises more funding than its potential sale price, its valuation may be too high for potential acquirers and partners. To avoid this mistake, track valuation trends from the start.

Consider how much funding similar companies raised in their lifetimes, what benchmarks they hit, and their final sale price. An exit strategy is constantly evolving.


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It is subject to change as a company grows and pivots. Take advantage of buyer research opportunities. Take a hard look at your company. Does your innovation stand out in the marketplace? Is it your talent, IP, or market access? Why would an acquirer choose your company over the competition? Answering these types of questions can help startups identify the next steps needed to impress acquirers. An exit strategy is among the top three things that an investor wants to know about a startup. Investors will look for a plan that clearly outlines a path to create value, the necessary milestones, and how the company plans to secure one or more potential buyers.

Angels, venture capitalists, and other equity investors generally aim for a 10x return on investment within five to seven years in order to receive competitive overall portfolio returns of x. How can companies put these steps into practice?

Successful Acquisitions: The Complete Roadmap to Buying Companies

Start by participating in an investor readiness training program. While no two deals are alike, there are some basics components for executing a successful acquisition. Develop an internal working team made up of representatives from finance, sales and marketing, and operations. You also want to consider using outside experienced advisors such as lawyers, accountants, investment bankers, valuation experts, and in some come cases insurance or employee benefits experts. To successfully acquire a company, there must be cohesive thinking and constant communication among team members.

Sherman says that the quarterback of the acquisition team should be the CEO or someone appointed by the CEO, who must clearly define both responsibilities and authority of each team member. How to Assemble a Board of Advisers. Initiating a Target Search. The team should decide if an investment banker will find and evaluate targets or if deal flow will be generated internally through screening, networking and industry contacts.

An investment banker will have access to valuable resources and provide invaluable counsel on valuation and negotiation. What if an ideal target company is not for sale? Then the CEO or senior member of the team will have to approach the owner with a compelling offer as to why the two entities would be strong financial and strategic fit.

How the best acquirers excel at integration

You have an upper hand in that there won't be competition from other buyers, Butler says. How to Find a Business to Buy. Why are you doing this? What are your specific objectives? Where are these target companies—domestically or internally? How will you finance the deal? What are the value-added efficiencies and cost savings that will result from the proposed transaction? How will you choose target companies to buy? You will need to draft an acquisition plan that includes objectives, relevant industry trends, method for generating deal flow, criteria for evaluating target companies, and a timetable for deal completion.

Pre-transaction success factors

No one valuation method will answer the real question which is what is this business actually worth? Value is in the eye of the beholder. Generally speaking, market value is one indicator. Other price factors are capitalization of earnings, discounted cash flow, and net return of assets or equity. But you also want to consider strategic value, meaning, what is the projected earnings stream under the proposed new ownership.

Post-transaction success factors

Look at assets such as customer lists, brands, intellectual property, and licenses. You want to buy at a reasonable price. You want to get as much as the business is worth to the buyer, says Sherman. You have to do a good job at not only understanding the financials of a business you are going to acquire. The Business Valuation Guide.

7 Steps to Formulating a Successful Exit Strategy

Since each transaction is unique the structure will vary with a wide number of options available for financing the deal from equity financing to a layered transaction with multiple layers of debt and equity, notes Sherman. Overall the key factors that affect a structure are the size and complexity of the transaction, the buyer's cash position, the terms of the purchase price, and market conditions.

For larger deals, the public markets are available whether it is offering public stock or going to the public debt market and getting financing.