2022 has been an incredibly difficult year for a startup to scale. The deadly combination of climbing inflation, rising interest rates and macroeconomic uncertainty has cut off access to fresh capital for many ambitious technology companies, tanked revenue, and forced recruitment cuts.
Still, the potential for M&A activity remains high — as demonstrated by Adobe’s $20 billion acquisition of Figma and Mandiant’s $5.4 billion sale to Google — and some opportunistic startup leaders look to the current environment to expand their business. Will see this as an opportunity to join forces with another industry. players to achieve their common goals.
How to improve your open source security? Follow these three steps and get on the way to strong security practices. Show more Follow these three steps and be on the path to strong security practices. show less
However, tech acquisitions are a long, complicated process, and startup executives — who are often dealing with mergers for the first time — need to be well prepared to ensure that any potential deal goes smoothly and successfully. .
Earlier this year, Paddle acquired US subscription metric startup Profitwell — a company our founders had been interested in joining forces with for years — amid a turbulent economic backdrop. Based on this experience, we believe there are three key lessons any tech founder should take into account when going shopping or selling:
#1 Speak on vision and values before evaluation
Many founders will assume that any potential acquisition has to begin with a financial one: discussing with the other party how valuable the deal will be.
But the truth is that money doesn’t matter if the two businesses aren’t the right cultural fit. Conflicts in values, goals and visions for the future of the combined company will cause huge issues in the long run, so make sure these are aligned from the start to make the post-sales transition as quickly as possible.
In our case, Christian Owens (our CEO) and Patrick Campbell (then CEO of ProfitWell, now our CSO) had known each other for years and both made a commitment to empower subscription businesses to grow with as few operational constraints as possible. shared a view. In addition, Christian was a fan of Profitwell’s product and business model for as long as Paddle’s office was his apartment kitchen. The value match was there from the beginning.
And when it comes to conversations, we still had at least half a dozen conversations about the purpose of the pedals and how we saw the world, and whether or not it was even aligned with profitwell. Therefore, before any negotiation, be sure to have an honest, open discussion with the other party to ensure that your perspectives and values are on the same page. You can then pivot to set a fixed price on the deal.
#2 Do your research – but stick to the essentials
As obvious as it sounds, it’s paramount to do your homework on the company you’re acquiring or selling, and before the first round of discussions and throughout the process once negotiations are fully underway.
In advance, collect information about the other company. What is it like to work for? How is the business performing? Who are its investors? What experience does the executive team have?
Sites like Glassdoor and CrunchBase are great for this, but talk of mouth shouldn’t be underestimated, especially if your area is as tight-fisted as SaaS-in-law. 6 months before contacting Profitwell, we interviewed some of their customers about their experience using the platform and what they would change.
We also talked to our employees and asked if our team or clients are using Profitwell, and if so, what features they are using. And if you’re selling your startup, find out if your acquirer has bought another business, and if so, ask executives at those companies how the deal went. Asking about the ecosystem is the best way to get an authentic, first-hand assessment of what the other party has to offer.
But when it comes to fact-finding later in the process, stick to the essentials. We asked Profitwell directly to provide a list of clients, three years of financial information, employee turnover figures and financial audits. While there will be countless things you might want to ask the other company, be sure to investigate how much you really need. This will prevent you from dominating the other side, speeding up the overall process.
#3 Consider and establish important terms for the future
When undergoing an acquisition, it is safe to assume that the acquiring company will absorb the intellectual property, legal entities, and employees of the business it is purchasing.
However, there are other important terms that are important to consider from an early stage to ensure that the post-deal status quo works in everyone’s favor as well. For example, if you’re making an acquisition, consider and negotiate what will happen to the leadership team of the business you’re merging with. Will these officers play a role in the new settlement? Will they expect to sit on the board of directors or take a senior position?
Be sure to have open communication with the other party’s senior leadership team; In our case, we decided collectively that the CEO of Profitwell would be Pedal’s new Chief Strategy Officer, while his CRO assumed a similar role for Profitwell products.
These discussions can also apply to the product side of things. As part of our deal, Profitwell wanted to keep its Metrics product free to use for the foreseeable future – something we were equally committed to.
M&A’s Made Easy
Despite global economic uncertainty, tech acquisitions are not slowing down – and there are more than $770bn sitting on the balance sheet for software firms alone. Many companies are looking to buy or sell in the coming months.
But while a takeover can be a daunting prospect for both buyer and seller, it doesn’t have to be. If you’re serious about merging with another tech business, be sure to consider valuations, do your homework on the company you’re joining, and make sure you consider the key terms. Which can prove to be dealbreakers.
If you’re interested in going through an acquisition yourself, we’ve released a documentary highlighting our deal with Profitwell, which you can watch here.
Half of your employees are planning to quit soon! This is how you can stop them. Check it out!Show moreHere’s how you can let them be. Check it out! show less