Being well-informed about potential acquirers doesn’t require a crystal ball, but it can help fund your future.
It is the clichéd finish of most investor pitches: a slide listing a few household-name companies as potential acquirers. It is not uncommon to hear a founder say, “We’ll hit year three, then Microsoft will buy us, because they build software, too.”
Casually rattling off names of potential acquirers is little better than having no exit strategy at all. Well-prepared entrepreneurs should be able to answer as many questions about potential acquirers as they can about their own operation. Understanding the acquisition patterns of target companies is a matter of research. Acquisition data is readily obtainable for many of the largest conglomerates, through either public filings or media coverage derived from investor capitalisation tables. There are three areas in which a founder should be prepared to answer questions when identifying an acquirer.
1. Does this company actually grow by acquisition? [How frequently do they acquire? Legitimate prospects have demonstrated that they acquire often–or, even better, have a committed merger, acquisition or strategy arm. In general, larger diversified companies are viable possibilities because they typically have greater cashflow, as well as a size and scope that makes internal innovation more difficult.
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