Always Explore M&A, Always

This week one of our companies will be visiting with a potential acquirer in SF about what an acquisition might look like.  Even though the company is not for sale and hasn’t hired an investment bank, we’ve encouraged our portfolio company to take the meeting for a number of reasons.


-Unfortunately, rarely do you get to choose when you want to sell.  Timing is everything when it comes to M&A and you won’t get bought unless: i) the macro environment is right (M&A dried up in 2008/2009); ii) your acquirer has the financial wherewithal to make an acquisition comfortably; and iii) the acquirer has a big need for your product/team/customers.  That’s a lot of boxes to check and rarely do they all align at the same time. 


-If you say ‘no’, they’ll find someone else to say ‘yes’.  Whenever a potential acquirer knocks on your door, if you don’t consider selling very rarely will they wait 1 to 3 years on you to be ready to sell.  In all likelihood they’ll approach the next best acquisition target or build out a team themselves.  If they do either of those things, consider them gone.


-You may be worth a lot more than you think.   For example, General Motors just announced they’re acquiring Cruise Automation for $1bln.  What’s significant about this acquisition is not just the big valuation, it’s that Cruise did their last round 6 months ago, which was a $12.5mm Series A at a valuation of $89mm.  I can promise you that at the time of the Series A, no investor thought to themselves, “I bet we sell this thing in 6 months for a billi,” but GM needs the tech right now, so they paid up.  The same may happen to you, but you won’t know what your value is to an acquirer unless you take the meeting.       


-Warm up your potential acquirers at least a year in advance.  Let them get to know you now and keep them updated going forward so that when you’re ready to sell or they’re ready to buy, you’re already on their to-do list.  Familiarity breeds premium exit multiples. 


In summary and as the Cruise Automation story shows, everything is always for sale at the right price, so stay close to your potential acquirers and build relationships early.              

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