The mobile security company I founded, Location Labs, was recently acquired for $220 million by antivirus company AVG. Although I knew from day one our company might someday be acquired, much of the credit for our success goes to solid guidance. Just because you’ve built a successful business from scratch doesn’t mean you’ll kick it at M&A. It’s a whole new world. What questions aren’t you asking? Whose input have you forgotten to get? Which vital steps aren’t even on your radar? If you’re beginning a similar adventure, or if you’re even just exploring, these are the top five things I advise you to think deeply about before you even put a toe in the water.
1. Your VP of Finance must be a BEAST
Specifically: strategically savvy, incredibly organized, and willing to work 100 hours a week for 3 to 4 months straight. Without the right person in this role, you will fail. If your chief executive is doing financial modeling, they’re spending less energy on negotiations, term-setting, all the transaction aspects only they can handle. You’ll wind up with a CEO who’s completely drained. Getting through M&A is stressful enough without having to do someone else’s job on top of your own.
2. Law firm matters — A LOT
Make sure your M&A firm has plenty of deals under its belt. And that the other party’s does, too. Ideally, the two firms will have worked together before, meaning they can focus on the deal at hand rather than on establishing effective relationships. We chose our firm, Goodwin Procter, carefully, and their experience speaks for itself: They worked on Facebook’s acquisition of Oculus Rift and Google’s acquisition of both AdMob and Nest.
3. Don’t just fall in love
Remember: An acquisition is a marriage, not a wedding. It takes more than butterflies in the stomach and a great live band to be successful. You need total honesty, careful planning, and detailed, realistic expectation-setting. Nearly six months in, our relationship with AVG thrives because we were explicit about what post-acquisition, day-to-day life would be like.
Though it’s early days, Twitter’s recent acquisition of social media talent agency Niche seems smart in this way. Twitter surpassed analysts’ revenue and EPS expectations in 2014, but year-end MAU was soft. So you could say the company wanted a way to boost users, but Niche will likely increase revenue, too. And Twitter clearly wants Niche to keep doing what it has done really well by bringing the team in with a healthy retention package.
4. Be honest
It’s tempting to inflate numbers to speed things up. Resist. Deals take longer than you expect. Those puffed-up numbers will bite you in the butt. Tell the truth and stick with it. Assume the transaction will take 12 to 18 months. If early on you play fast and loose with expectations, you will regret it when things come down to the wire and you’re missing targets. You’ll watch the deal fall apart right under you. Under-promise and over-deliver.
5. Say everything 7 times
Announcing the deal to employees isn’t a one-time thing. Ongoing transparency is vital. Be specific about what the change means for everyone’s daily life and future — repeatedly, and in many forms: town hall, one-on-one, executive drop-in.
We have two people here who worked for Flip video when Cisco acquired it, which they said was a terrible experience. Listening to them gave me solid “what not to do” lessons. Apparently, the CEO came in, announced they were being bought, then wasn’t heard from again. There was no real plan for company goals and what employees’ roles would be. Sure enough, they shuttered the business a couple of years later, laid everyone off. Don’t be that guy. Be a leader — which is not a one-shot job.
Tasso Roumeliotis is CEO and founder of Location Labs. Prior to Location Labs, he was a vice president at Claridge, a $3 billion fund with wireless and media assets. He also worked at Bain & Company, where he was the highest-ranked associate in his Bain Class.
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