Acquisition Offer Inbound!
How to present an M&A proposal to your board
If you haven’t already - get the second edition of the MBP book here. Posts on MBP.co make a lot more sense if you’ve read the book!
I’m going to knock down a few blocking-and-tackling topics over the next few posts. Subjects that frequently come up, but are infrequently discussed. They aren’t going to be in any particular order, but I think they’ll all be useful.
The first is on how to present (and discuss) an acquisition offer to your board. I get calls from founders who’ve received some form of offer and are at a complete loss for how best to discuss it with their board. I’ve pulled together an outline for how to approach that presentation/conversation.
What I’m not going to cover is how to setup the right offer (that’s in the MBP book), nor dive into negotiating the offer (that’s covered in lots of places on the MBP.co site). This post is specifically on how you present the offer-to and facilitate the conversation-with your board. How you provide the information they need to make an initial assessment, and develop an action plan. Naturally, the specifics of each of these elements is highly contextual to your situation, what’s here are just the headline topics to you’ll want to anticipate, and cover.
Additionally, and super importantly, talk to your attorneys. Even just the receipt of an offer can trigger legal implications: notification right, covenants, who knows what else. As such, in addition to these business topics, you should also sync with your counsel on what other dynamics an offer creates, and what additional topics you may need to add to this outline.
Let’s get to it…
History of the relationship
Context is king. How did you get here?
Provide the background on the relationship. What was its genesis, how has it developed, how would you describe its current state? Is this partner coming in hot from out of nowhere, or are they someone you’ve been working with for years? This history provides key context to the formation of the offer, the nature of the relationship, and why the potential partner is making such an important move right now.
Thesis in combination
Why does this combination make sense? If you’ve been following the MBP then this is mostly a summary of the Market Leadership Positioning (”MLP”) document. The articulation of how, with your help, the PSP will emerge as the #1 player in an important new category. If you’re newer to the MBP then this is your analysis of the strength of the thesis (from both the partner’s side and your side). What would both of you be looking to accomplish in this combination, and why does it (or doesn’t it!) make sense. Thesis strength is critical. A weak thesis doesn’t just represent a challenge to valuation, it also means there’s a high likelihood the deal won’t make it all the way to close.
People and process
Who have you been working with on the Potential Strategic Partner’s (”PSP’s”) team? Who is your ultimate sponsor there? Who is primarily spearheading the conversation (they are probably different people)? As discussed in the MBP book, most startup acquisitions require the turning of keys by three groups: product strategy sponsorship, corporate development/deal team engagement, and executive visioning - give your assessment of your degree of progress with each of these groups. What do you know about the approvals/hoops the buyer will need on jump through to get a deal done. What level of buy-in is there on the buyer side at this stage of the process?
Deals have a tempo, report on the cadence of the conversation and pace of meetings. What have been the topics of recent meetings and participants at those meetings? On the flip side, you’ll also want to discuss who on your team has been read into the proceedings. Has this relationship (and proposal) been made aware to a wide group on your team, or is this closely held information?
Proposal summary
Now you get to the meat. Walk through the proposal itself: structure, consideration, contingencies, retention, risk splitting, exclusivity, and so on.
One firm rule: do not make assumptions. Go with what you have in hand, or at most what’s been communicated to you directly by the PSP. Board members have long memories, and they will not react well to changes to terms they believe have already been set.
Economic assessment
After the deep dive into the proposal, go back up to ten thousand feet and give an overall assessment of economics. Break down the high level waterfall from debt, convertible securities, and through the layers of equity holders. In parallel with this high level company acquisition assessment you’ll also want to provide a parallel assessment of how this acquisition will be viewed by your team. In almost all cases retaining the team will be one of, if not the, top priority for the PSP. You don’t want to get a deal baked and then realize there’s just not enough in it to motivate your key team members to make the trip. Particularly if it’s not a home run outcome (where every hurdle is cleared and every stakeholder is in-the-money), this economic assessment is critical. You’ll want to
