Jun 8 2005

M&A Part III – Getting Bought vs. Selling

Perhaps I’m stating the obvious, but one thing that I’ve noticed over the years (and have talked about extensively, particularly with Brad who very much shares this view) is that it’s much easier to have a company get bought than it is to sell a company. Getting bought means that someone comes to you. Selling means you go to them. The former results in a more motivated buyer, an easier (and faster) process for rounding up competitive bids and a higher price. The latter is a pain in the ass, tends to result in fewer options and generally a lower purchase price. When you are getting bought, you by definition have other options (since you don’t necessarily need to sell); when you are selling you are signaling to the market that you’ve made up your mind (whether you’re “exploring your strategic options” or more directly “have decided to sell the business to take advantage of . . . “). So position yourself to be bought rather than to sell. Yes, sometimes this isn’t possible (otherwise all of our businesses would get bought), but I think companies think too late in the game about their exit and as a result end up as sellers. An ongoing conversation at companies should be the list of possible buyers and the right ways to get close to them. Striking “strategic deals” or OEM relationships should be at the top of the list (we’ve had several very nice ‘getting bought’ experiences with significant OEM partners – they understand the business and the fit and can more easily take advantage of owning the company/technology). If those aren’t options, still work at getting into a conversation (competitive or otherwise) with people that might be buyers of your business.

The right time to do this is when you don’t need an exit. The wrong time is when you’re got 6 months of cash left and need an out.

See my other posts from this series:

M&A Part I – Lines in the sand
M&A Part II – A few thoughts on negotiating skills