Five Steps for a Successful Acquisition

Article by: Mark Friedler, EO San Francisco.

Many entrepreneurs dream of selling their companies to a large acquirer; it’s one of the most exciting aspects of building a business. I recently negotiated the sale of my third business to TimeWarner, and I learned a lot in the process. Here are five steps that taught me how to make the acquisition process easier:

1. Sell your company before it’s for sale. When it comes to acquisitions, focus is a key element that attracts buyers. When I realized I wanted to sell my business, I adopted a focus that was clear to both ou customers and the market. My company, GameDaily, created content and delivered to advertisers a mainstream audience interested in video games. I asked my team two years before the deal happened,
   “How can we be laser-focused?” We decided to increase our commitment to the growing mainstream, while our competitors fought over the same over-served core audience. When the Nintendo Wii became a huge success, our differentiated approach, product and customer-value proposition was a clear winner in stark contrast to our competitors.

2. Upgrade your team. To plan early for the acquisition, we decided to top-grade our team. I worked with a consultant to assess my team and matched their behavior strengths, values and talents to best suit top performers with optimal roles. I let go of laggards, promoted or hired the best people, and then trained them on specific skills in my business. Having a top team was a huge benefit for us in the due diligence process, and it made the overall acquisition process easier.

3. Prepare for due diligence before a deal arises. Many of the items on
   TimeWarner’s due diligence list were things we hadn’t considered. We didn’t have audited financials, our programming code was not as well-documented as it could have been, and some of our key operations and sales processes were not written down. Rushing these things to get a deal done was stressful and time-consuming. I should have instituted an internal due diligence process, and hired an experienced business consultant, law firm and CPA at least two years before I went to market. I discovered that this a critical component in substantiating your valuation and asking price.

4. Review your key client contracts. Many large firms calculate the multiples of a desirable business based on predictable future-client contract terms. As for my business, many of our deals had “60-dayout” clauses or were month-to-month. This was a big mistake. If our large client deals had been two-year terms or longer, we would have increased our valuation substantially. Looking back, I would have gladly given up a few points on price in our contract negotiations in exchange for longer-term deals. Why? Because in an acquisition, the buyer evaluates your long-term sustainable revenue streams when arriving at a valuation.

5. Think of what you want next. TimeWarner offered me an executive role in leading the building of the GameDaily brand. I knew I’d be there a few years, and then I’d go onto something new. However, I hadn’t counted on all the meetings and conference calls that took up most of my day. I didn’t have flexibility and the environment wasn’t desirable. In short, I hated it. I negotiated my role specifics with my boss after problems arose, when it would have served me better to have been clear and specific about my needs in advance.