This article is part 4 of a 4-part series. In three previous articles, I reviewed the overall process of selling your tech company, discussed what you can expect during due diligence, and then went over five issues to watch out for that could kill the deal.
If you survive the negotiation and due diligence process described in my previous three articles and your deal closes, congratulations! You’ve sold your tech company. Now the real fun begins. If this is the first time you’ve sold a company, there are some things you need to know.
What happens during integration will depend on the model that the acquiring company intends to follow. There are a few common integration scenarios when a small to medium-sized company is acquired:
- The buyer may decide to continue to run your company on a standalone basis. In this case, there may not be a lot of change, at least in the beginning. For many entrepreneurs, this is the best of both worlds. You retain a decent level of control, but you most likely have access to additional resources. This is not an unusual first step in an acquisition.
- More commonly, the acquiring company is hoping to leverage your technology in its own operations, and plans to fully integrate you into the existing company. If this is the plan, I hope you like meetings.
- If you’re a hot startup or app developer, it’s very possible that the buyer wanted you for your people and not your product. In that case, your company may essentially be dissolved soon after the deal closes, and your employees will work on new projects within the new company.
- It’s not unheard of for companies to purchase an upstart competitor simply to shut them down and eliminate a perceived threat. If that happens, you and your employees may not have a long future with the buyer, and you probably also signed a significant seller’s non-compete agreement.
- If your company was acquired to replace an existing or outdated technology, you might find yourself in charge after the two companies come together, but don’t count on that happening — this is probably the least likely scenario.
As you can see, it’s important to understand the buyer’s integration plans before the deal closes. This should be part of the conversations leading up to the deal. You may need to balance payoffs for the owners of the company, jobs for your employees, the level of your personal control and your freedom to work in the same industry for years after the deal.
Too many entrepreneurs are surprised to find out what life is like after their company has been acquired. They’ve gotten used to working for themselves and they’ve forgotten what it’s like to be an employee. Maybe they were never an employee at all if they started their company in their college dorm.
Here are some things you’ll need to deal with to one degree or another regardless of the buyer’s integration model and plans. Think about this list long and hard before you decide that working for someone else is worth the financial rewards from selling your company:
Many buyers have good intentions for their acquisitions, but the employees from the selling company can end up feeling like second-class citizens. It’s not uncommon to hear comments like “WE’RE the ones who bought YOU” when the new people try to make suggestions or shake things up a little. It can be very hard, especially for the owners of the company who sold, to accept that they have less authority and influence than they previously did.
Bureaucracy / Policies / HR
Startups and small tech companies usually put a low premium on written policies, employee handbooks, expense reports, time sheets, etc. Many entrepreneurs feel like they’re swimming in a sea of red tape when they become part of a bigger company. Bureaucracy is often a fact of life when you’re acquired. Can you deal with it?
Remember that even though you probably feel thoroughly investigated after you laid bare the details of your company during due diligence, the majority of the people working at your acquirer know very little about you. You’ll spend a decent amount of time after the deal closes telling people at the new company what you do. They’ll also want to know how your technology can help them in their areas of the business. Be prepared to do a lot of educating. At many companies, this means meetings.
Not Being in the Loop
After the deal closes, you probably won’t be in charge. There most likely is a new hierarchy of leadership and politics to navigate. Besides having less influence in general, you might not even be in the room when big decisions are being made. Can you accept that?
Financial Requirements and Responsibility
Many startups are focused on goals around market penetration, user experience and innovation. Can you see yourself successfully projecting revenue, living within a budget and making decisions around quarterly financial goals (if your acquirer is a public company)? You may find that your business needs to be focused on a completely different set of priorities. Can you be successful under those circumstances?
Selling your company can be very rewarding, but you need to go down the path with your eyes open. The best way to see the deal through to a successful conclusion is to be prepared. Understand the process, know what to expect during due diligence and run your business accordingly — well before the deal making starts. Understand the buyer’s intentions for integration and be sure their plans align with your goals, aspirations and needs. Get important commitments in writing.
I hope this overview of the process of selling your technology company has been as useful to you as it has been enjoyable for me to write. If you haven’t already seen the previous articles in the series, check them out below.
Be sure to read part 1: What to Expect When Selling Your Technology Company