One of our companies went through an M&A process that ultimately fell apart. During the process, we made big mistakes which one absolutely cannot make:
Never show the acquirer all the code. The acquirer came on-site three times and audited/reviewed the code with the team multiple times. As a result, they pretty much had the roadmap to build our tech bug-free and no longer needed to buy us. Whereas it took us 4 years and $10mm to build our technology, by showing the acquirer the roadmap they could replicate our tech in 6 months. While it’s hard to say no to an acquirer, be sparing as strategic as to what you show them when they ask to dive into the code.
Make sure you have non-solicitation clauses protecting employees. Any NDA and term sheet needs to include non-solicitation or no-hire clauses which prevent the acquirer from trying to hire your employees at any time, up to two years after the acquisition process should it fail. In our case, we didn’t have these clauses so once the acquirer saw the code, they attempted to poach our key data scientists and developers during the actual M&A process. It was very bad behavior on the acquirer’s part but we couldn’t do anything about it.
Build a product, not just a technology. Our company built phenomenal technology but didn’t actually productize it. The acquirer saw this and essentially treated us as an acquirhire, attempting to isolate the value of the team and the tech which is never as valuable as an actual company with a product, sales process, recurring customers, etc. Building a product and selling it makes you a company which is far more valuable than just being a team with great technology.
Another side effect of building a great technology but not an actual product: although every contract we signed was big, it was always a custom project which took up team resources and had a very long sales cycle. Had we built a product around the technology, we could have said to a customer “here is the product, if it’s a fit for you, sign this nifty SaaS contract.” If the product wasn’t a fit, no problem, we could move on and focus on our real customers as opposed to expending resources trying to mold the technology to particular needs.