Introduction Who am I? Why, When, How Preparing Finding a Buyer Confidentiality, Evaluating, Negotiating Earn Out Reps and Warranties Deal or No Deal
Who am I? - Entrepreneur most of my life - Fixed broken TVs and sold them in high school - Have an EE PhD (3D Optics and Image Processing) - Have owned and part owned a variety of businesses, closed some of them - Had the ultimate success in my last one (sold to a US multinational) - Had to remain with the purchaser for 3 years - And then took a vacation and started a new business I have done what I'm talking about
Academia vs Business AcademiaBusiness Funding/GrantsSales/Profits Less constrained R&d Product focused r&D PublicationsProducts Keep the university happyKeep the shareholders happy People are part of the valuePeople create the value Academia and Business are different but should be complementary. (At least in engineering!)
Setting the Stage - You have built your business into something valuable - It is running and generating a profit - It shows real future potential that can be calculated/demonstrated - It is not a one person shop - It has IP and other items of value (large, profitable customer base) You could keep running it if you wanted to. Can you do EVEN BETTER if you sell out?
Why sell? - Purchaser can make (and pay you) much more $ than you could make (worldwide sales offices, huge customer base, known...) - Reduce risk (trade future potential for guaranteed $ now) - You want to do something else - The owner(s) are not well suited/interested in managing a larger business. - You have been made an offer you cant refuse (I wish!) - More viable for small business than an IPO Money!
Preparing from Day 1 - Have all your IP well documented. - Guard/retain ownership of all IP in contracts, licenses. - Don't contaminate by using GPL code in your code (or hardware!). - Implementation is king! A great idea not implemented is worthless in business. (There are a million people who have a “great idea”. I have a few too) - You must have a business plan backed up by sales and profits. - Accounting, legal issues, sales and marketing all in order. You don't get bought because you are or have a brilliant team. You get bought because of “predictable” sales and future profits.
Finding a buyer - Often a buyer is a customer (or some other long standing contact) - Competitor (they approach you) - You are in a weaker position if you have to actively find a buyer - Use networking to the fullest - Avoid consultants who haven’t actually done it At some point there will be an casual question asking if you you might be interested in selling: “Every business is always for sale!”
And the roller coaster ride begins ….. - Non-disclosure agreement, Exclusivity Period (must be well defined and limited in time and extent – need a good lawyer!) - Evaluation - Sales and profit record - Market analysis (your marking person must know data inside-out!) - Don't make crazy exaggerated projections. - You must argue a credible case on the value of future profits - Try and get the other party to reveal their projections first - Its not the “the quality of the people” - Due diligence - Legal types to evaluate all your legal documents, patents - Accountants to evaluate your financial documents - Technical types to evaluate all your code, designs, patents etc - Limit what they can make copies of (no source code etc)
Negotiating - Both the with the purchaser and your shareholders. - Information is key (verify claims, know what they want, will give up, lies?) - Understand their needs (both the company and the negotiator) - Have a backchannel(s) - Look at the whole package (including tax implications) - Need overlapping bands of offer/accept values - Put aside any issues on which there is an impasse till the end - Longer can be better – and be prepared to walk away!!!!!!!!!!!!!
Earn Out / Escrow / Reps and Warranties - Without control, be VERY wary of an earn out – unless you already have all you want. - Large earn out shifts risk back to you – whats the point of selling? - Many takeovers fail in some way, more likely if the buyer is huge - Assume no synergy even if synergy is obvious - Escrow during the warranty period more acceptable, hard to avoid (be wary of US or foreign banks) - Limit Reps and Warranties to the escrow or some other period and to very specific items that you can live with (ie any patent infringement claims limited to n years) MAKE SURE YOU CAN LIVE WITH THE DEAL!!!!!!!
Deal or No Deal? - Offers and counter offers, even before negotiating. - A series of tests – sort of like border skirmishes on the cold war - Turn down an offer, you may not get another - You generally get stronger if they are still interested (unless something bad happens in the meantime e.g. recession) - Keep your cool, behave professionally till (and after) it is signed. (Dragons Den video)
Sale is complete! - Celebrate! - Accept that someone else is now making the decisions - Prepare for a lot of stupidity (proportional to size of purchaser) - Read Dilbert - Figure out a way to make the next n years tolerable! - Repeat!!!!!!!!!!!!!!!!!