Last year North America recorded approximately $2.07 trillion in M&A transactions across 16,420 deals. If an unsolicited acquisition offer came tomorrow, would you be ready?
The best way to prepare is to step outside your daily operations and look at your company the way a buyer would. When we help CEOs position their companies for M&A, we run them through a thorough ‘valuation audit’ to surface issues and spot opportunities for strategic valuation. Below are just a few of the hundreds of questions that buyers may ask when evaluating your company for acquisition.
The Buyer’s Checklist
Unit Economics
What is the core revenue model, and how do you maintain pricing power and margin control? What sales metrics are tracked? What unit economics are tracked? How solid is your Quality of Earnings (QofE)? These questions help buyers figure out if your company can continue to scale profitably.
Sales
How many deals are in your pipeline? What is an average deal size, and what is your win rate? What is your cost per customer acquisition? What is your LTV:CAC ratio? What is your customer retention and churn? These are all metrics you should know immediately, and should try to optimize before you seek acquisition.
Marketing
If you don’t have the largest market share, does your company have the dominant share of voice? Is your CEO a recognized thought leader in your sector? Is your corporate vision unique, defensible, and memorable? Does the strength of your company brand allow for premium pricing and/or accelerated sales cycle times? Buyers are attracted to sector leaders, and M&A-focused marketing is a variable that can contribute significantly to creating strategic valuation.
Customers
What are the current customer personas, and what adjacent markets can the company grow into? Are customers under contract? Are they on annual subscriptions? Are customers concentrated in one sector? If so, how healthy is that sector? Buyers are looking for stability and growth here.
Governance
If an acquisition offer came today, who are the stakeholders who would need to be involved in the deal? Where are all your board meeting minutes kept, and are they ratified and signed? Do all employees have valid contracts? Do the founders have employment contracts? What is your average employee turnover? Glassdoor ratings? These are some of the questions that help buyers figure out if you have built a well-run company, or if things are still done seat-of-the-pants.
Legal & IP
When an M&A buyer does their due diligence on your company, they are going to assign a value to the IP that you legally and defensibly hold. Does your code base include open source? Those contract developers you hired before your Series A — did they all sign release waivers? Can you establish the monetary value of your patents? Founders often assume that M&A buyers will immediately recognize the value of their intellectual assets during due diligence, but it’s incumbent on you to highlight IP contributions to your valuation.
How to Prepare
If you are crushing it on all these metrics, the lawyers will love you, your acquisition talks will proceed briskly, and your negotiating power for a higher exit valuation will be strong. However, if the due diligence phase uncovers a lot of issues and ambiguity, negotiations will drag out and your strength and valuation will weaken. Time is your enemy.
Ask yourself what procedures and initiatives you need to deploy now in order to answer all of these questions (and more) with confident, convincing responses. Start preparing now so that you will be ready. We can help.