Depending on your industry, you may have the opportunity to acquire start-ups in your space. If this is something you’re strongly considering, it’s critical to understand the steps you can take to protect your organization, all while negotiating the best possible deal.
Once you pinpoint a start-up that you’re interested in acquiring, it’s time to reach out to gauge their interest. You’ll typically find that these companies are in one of three positions:
- They’re actively seeking an acquisition
- They’re staying the course with the idea of going public in the future
- They’re in a growth phase and have no intentions of “selling out” at the present time
If you connect with a start-up that’s interested in an acquisition, it’s time to do your due diligence.
Not only can this be a lengthy and time-consuming process, but it’s also stressful on many fronts. You’re making a big decision that will impact your company in many ways, both now and in the future, so don’t rush.
As you inch toward negotiations, these are just a handful of the many details to keep in mind:
- Valuation and pricing
- Risk reduction mechanisms
- Financial side of the acquisition
- Acquisition structure
- Employee incentives
- Acquisition accounting
All of these details have the potential to bring a variety of issues to light. For example, you may find that several key employees plan on leaving the company should an acquisition take place. This may change your mind in regard to the approach you take, the offer you make and whether you even want to move forward.
Also, it’s not out of the question that you’ll run into a snag when negotiating the financial terms and conditions of the acquisition. For instance, you may have one price in mind, while the other company is seeking a higher valuation.
There is no right or wrong way to acquire a start-up with success. The approach you take is based primarily on the terms and conditions of the deal, as well as the current status of each company.
If you’re interested in making an acquisition, take your time and do whatever you can to protect your business interests and legal rights in California from beginning to end.