Mergers and acquisition (M & A) offers can be tempting, but how do you know when to say ‘yes’ and when to say ‘no’? Accepting the wrong offer at the wrong time can be a costly mistake.
I have talked with numerous CEOs and Presidents who are considering a merger or acquisition offer.
A common question that comes up is the over valuing of the company’s worth. Just because you are growing at 10% per month doesn’t mean your value grows at the same rate. Acquisition offers can vary based on where your company is in its growth cycle. Considering the stage of your company’s growth is very important if you are going to accept the right offer at the right time.
Startup – You haven’t yet earned revenue. You aren’t yet on the radar unless your team is solid and proven. Prior to the first $1m in annual recurring revenue (ARR), those who are potentially interested are monitoring your minimum sellable product (MSP). This will be considered your initial purchase offer Maximum.
Initial Traction – You are at $1-1.5m ARR. You are now on the radar for big tech companies since they may be looking for acquisitions to fill gaps or expedite their product launches. We have worked many deals in this sector. If you have a hot product, and have the ideal equation, you may be able to score an offer of $20-100m. With proven initial traction, a solid customer base, and a product priced just right to hold a top spot in the market, you could essentially find yourself looking at a great offer even if your revenue isn’t quite as great as your competitor.
Initial Scale – You are very possibly growing at a high rate with an M & A opportunity between 5-10x ARR. At this point, you may not find an offer all that tempting, because offers at this stage can actually be lower than you may have had at the previous stage.
Up and Coming Scale – Once your ARR hits $10-15m, you’re a proven business. Projections look great and you are seen as a $100-200m product line for them – right where you are. Acquirers see the potential in your product, customer base, and marketing strategies. This can lead you to a nine-figure offer at your new purchase offer Maximum.
Cruising level Scale – Your company has hit $10m ARR, you are growing 100% but those M & A opportunities you once had are dwindling. Once you are interested in selling at $300m or above, you are far more limited in the number of acquirers.
Maturation Scale– You are at, or above, the $400m rate. Of course, it’s not unheard of to sell at $1.2B at a low ARR, but unless you are approached by giants in the industry, there probably isn’t a public company willing to take on the venture. Your chances of an attractive acquisition are slim, and you may find yourself facing an offer for much less than you had hoped.
The ideal situation seems to be to say ‘Yes’ to a good lower offer Maximum – or realize that if you pass it up, you may feel desperate to ‘settle’ later for a purchase offer Minimum. For the past two years, several entrepreneurs from rapidly-growing companies have turned down attractive acquisition offers preparing for a bigger payoff. I have assisted clients in walking through this M & A process. What I have found unique from other firms is that my clients can use The Oxford Group’s Hypergrowth Strategy to increase the sales while pursuing the best offer for a sale or acquisition.
Contact us at: TheOxfordGroup@att.net, by phone at 214 360 4000, or schedule an appointment at https://theoxfordgroup.youcanbook.me/.
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