Questions

How would one go about entertaining an offer to buy my company? Specifically, what are steps I should to take once I receive an email "Hi stranger, would you be interested in selling your site/product?" To be clear: I am not actively seeking to sell. But I'm interested in hearing offers (who knows, I might decide to sell in the near future). I have had a few people express interest, but I always brushed them off because I was so focused on gaining traction/growth and not interested in selling. But now I'm open to hearing what kind of offers might be out there. Specific questions: - What info would a buyer need in order to make an offer? - Would that info need to be verified or can an offer be made on the condition of verifying later (if the conversation gets serious)? - What is a general rule of thumb (formula?) for how to valuate a SaaS business? Just curious how this process usually goes...

Q) What info would a buyer need in order to make an offer?
Unsolicited offers rarely start out as offers. They start as conversations. Cold inbounds from potential acquirers are usually done to establish some facts and also willingness to entertain an offer. They need to have enough information to form a rationale (i.e. explanation as to why it makes sense to the acquiring company) and enough confidence that there is interest by the seller.

Q) Would that info need to be verified or can an offer be made on the condition of verifying later (if the conversation gets serious)?
A) Offers are always conditional. There is a delicate balance between knowing how much to disclose and when to disclose information, versus trying to force more commitment on the part of the potential acquirer.

Q) What is a general rule of thumb (formula?) for how to valuate a SaaS business?
A) Depends on the size and business of the acquirer. The smaller the acquirer (especially where its valuation is $100m or less), the more it becomes a relative valuation argument (what do we have and what do you have), but the larger the acquirer it is typically a talent acquisition model where the business dynamics are less important to what the team has demonstrated it can do and the perceived value that that team can make internally. This is even more true when the target (you) is generating less than $5m ARR on a trailing basis.

Finally, you phrased this question as "how would one go about entertaining an offer to buy my company?" so let me speak to a few general rules.
1) If you're willing to sell, be polite, efficient and courteous to any potential interest.
2) Quickly qualify who you are dealing with and their ability to make a decision (are they junior and just doing research or are they VP Corp Dev?)
3) Quickly establish mutual interest in a desire to dive deep, and get them to explain their process including other decision-makers etc.
4) Ensure that you have competent legal counsel who has significant experience in M&A, ideally with the buyer you're talking to.
5) *GET A TERM SHEET*. You have nothing until you have a term sheet and even then, you don't have a deal.
6) As soon as you have a term sheet, begin aggressively marketing your Company to other potential acquirers.
7) Try and put the impact of the financial outcome aside for a moment (very hard to do) and begin evaluating your suitors based on who you really want to work for over the next 3+ years. Do your due diligence on this question as much as possible.
8) Don't take your eye off the business or celebrate the deal until it's done. I've seen too many friends celebrate prematurely only to see the deal die or radically change at the last minute.

Happy to talk through this in a call with you in more detail.


Answered 10 years ago

Unlock Startups Unlimited

Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly.

Already a member? Sign in

Copyright © 2024 Startups.com LLC. All rights reserved.