13 Things to Beware of When Considering an Acquisition Offer

by / ⠀Entrepreneurship Startup Advice / January 30, 2015

What is one thing young entrepreneurs should be aware of when considering an acquisition offer?

Acquisition

The following answers are provided by Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

1. Legal Measures

Too often, entrepreneurs wait too long to seek legal advice. I always advise entrepreneurs to seek legal advice very early in theacquisition process for two reasons: lawyers can help you frame very preliminary conversations in the most favorable light; and especially in the startup world, your lawyer might be repeat players with buyers or banks and can shed light on their approach/style. – Basha RubinPriori Legal

2. Company Vision

I was approached with an acquisition offer a while back, and it was one of the hardest decisions I’ve ever made in my life. Certainly the money would help us hit our goals faster, but after discussing with my team and my mentors, I realized that it wasn’t what our vision for the company needed at the time. You have to be able to REALLY play Devil’s Advocate — then and only then can you know. – Rob FultonExponential Black

3. Non-Competes

We have helped with dozens of acquisitions and one of the biggest issues is whether the entrepreneur will be prohibited from participating in a competing venture. Entrepreneurs should pay particular attention not only to the duration and geographic scope of the non-compete restrictions, but also to the definition of a “competing venture,” particularly if they already have one in mind. – Doug BendBend Law Group, PC

4. Small Details

The purchase price should NOT be the only thing you’re considering. The big picture elements are important, but details like the location of the office, resources, future salaries, how long employees need to stay with the company if there is an earn out, etc. are all details that should be in the forefront of your mind as you consider an offer. – Luke SkurmanNiche.com

5. Comfort Level

You are going to be stuck working with the acquirer for at least a while. You want to do a gut check and make sure you are committed to work with them and that you are comfortable with them treating your employees fairly through the process. Don’t move too fast and sell to the wrong party. – Andrew AngusSwitch Video

6. Passion

For the next few years, the founders will wake up and go work for the company that acquired it. Is this something that excites them? Feeling passionate about joining is key to a successful acquisition. – Ioannis VerdelisFleksy

7. Due Diligence

When being acquired, you want to make due diligence easy for the acquiring company, but it’s also important to make your own due diligence a priority. Make sure your employees are in good hands with the acquiring company — check their P&L statements, get client feedback, get past employee feedback and definitely have your lawyer thoroughly vet them. – Amy BalliettKiller Infographics

8. Control

A lot of people start their own business because they can’t function any other way. They like to be in control of their own destiny. When your company is acquired, you will now have to answer to somebody else that’s not yourself. It’s important to ask yourself, “Will I be able to handle going back to not being my own boss?” – Cassie PetreyCrowd Surf

9. Cultural Fit

When getting acquired, you want to assess the company that wants to acquire you. What type of culture do they have? Do they have a working environment that you and your team are excited to work in? This is very important as it can impact your team morale and the success of the acquisition. – Randy RayessVenturePact

10. Deal Structure

Every part of a deal structure is negotiable: numbers, timelines, conditions and more. As one example, in a 100 percent buyout situation, cash upfront may sound great. But you may be better off — particularly if you have signed contracts in place that translate to significant bottom line growth — to structure an earn out with upside profit sharing. Explore all your options. – Emily Holdmanadventur.es

11. Value of Time

Young people tend to discount the value of time. When you’re young, cash means a lot because you can make a return in other investments. It’s fine to take cash as long as you make good use of it. But remember that keeping a small piece of a company can turn into something huge over time. Don’t be afraid to do a deal and take some cash, but fight to keep some kind of upside in the future. – Miles JenningsRecruiter.com

12. Closing Costs

Just like in a real estate deal, be aware of “closing costs.” These might include hefty attorney fees, separation agreements, stock triggers, taxes, etc. Determine your real “take-home” payout before agreeing to a deal. I’ve seen many transactions that appeared attractive in the beginning end up netting a minute sum. – Gideon KimbrellInList Inc

13. M&A Advisors

Having been on the buy and sell side of mergers and acquisitions multiple times, I can tell you the single most strategic thing you can do if you are going to sell your company is hire an M&A advisor. Many M&A advisors will work on a performance fee (4-6 percent of a transaction) and will help you get a higher exit price and will also help you with all the details of negotiating and closing the deal. – Kristopher JonesLSEO.com

Image Credit: Shutterstock.com

About The Author

Matt Wilson is Co-Founder of Under30Experiences, a travel company for young people ages 21-35. He is the original Co-founder of Under30CEO (Acquired 2016). Matt is the Host of the Live Different Podcast and has 50+ Five Star iTunes Ratings on Health, Fitness, Business and Travel. He brings a unique, uncensored approach to his interviews and writing. His work is published on Under30CEO.com, Forbes, Inc. Magazine, Huffington Post, Reuters, and many others. Matt hosts yoga and fitness retreats in his free time and buys all his food from an organic farm in the jungle of Costa Rica where he lives. He is a shareholder of the Green Bay Packers.

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