A Detailed Look into Acquisitions

A decade ago, if you told someone that you were in stealth mode and trying to stay under a radar, they would probably call the cops on you. Today, they'd ask you for a job!

The blossoming startup ecosystem has contributed to a familiarisation of some esoteric concepts dismissed as jargon and leetspeak not so long ago. At the same time, the industry is unforgiving, with cutthroat competition and the perpetual struggle for market share. As burgeoning growth slows down, companies develop cognisance of a hard-hitting reality--not everyone makes it to unicorn evaluation. At the same time, not all these companies fail. In fact most founders are looking for a reasonable return in terms of a merger or acquisition offer to make a clean, profitable exit from their company. 

Acquisitions are offers to purchase a controlling stake if not a company itself, driven by a wide range of factors, especially the opportunity to add to the repertoire of products and services  offered by the acquirer. However, this isn't as corporate a process as we usually perceive such events to be; in fact these offers are followed up by weeks, even months of discussions before an agreement is reached. A people-driven process, acquisitions involve the cooperation of every stakeholder on the executive board from the CEOs and CFOs to the Board of Directors. 

Critical business development often arrives at a grinding halt or frustrating slowdown as the senior management grapples with the idea of an acquisition or a merger, making a solid basis for the decision to sell a prerequisite to enter this process.The first stage involves business evaluation where there is a delineation of factors from the  market share to  corporate culture contributing towards arriving at a price to peg the company at. A proposal is prepared with details of the financials involved, built around the cash flow and time value of money provided by the company for the acquirer.  Next, the management needs to discuss and evaluate the prospects for the company, whether there could be a possible restructuring of the deal, and arrive at a consensus for moving ahead from that stage.

This period is utilised to solicit other offers with the possibility to engage the buyers in a bidding war for the company. This allows time to streamline operations before entering into negotiations over the term sheet. As a rule of thumb, startups have considerable leverage before signing off on the term sheet; however, following the acceptance of this document, the language often favours the acquirer when it comes to the things that were not originally considered or negotiated. 

The final stages encompass a discussion of legal and business terms with the former presided over by teams of lawyers and the latter requiring the company to call its executives to the discussion table once again. Acquisitions are often extended, draining and demoralising processes since they usually involve an exchange of critical intellectual property or market share for fiscal resources. There looms the perpetual risk of the deal falling through right until the final wire transfer of funds. This ostensible golden buzzword fails to convey the arduous journey of a team from inception right up to the minute the deal goes through. Tread with care!