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Ask HN: How to handle acquisition offer from a competitor?

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Re: Ask HN: How to handle acquisition offer from a competitor?

#11

Post by pors »

How bad is it for the acquiring party if they get a bad reputation by fishing for information and walking away afterwards? If they are planning more acquisitions in the future they would never make such a bold move.

I would:

- review the NDA, and make sure your lawyers are happy with it

- disclose as much information you feel comfortable with

- if they want more, ask for a term sheet (with a number in it, and all details about a possible earn-out etc.!)

There is no pressure on your side as you are not looking for an exit yet, but I assume there is a price for everything so just keep moving the proces.

PS If you haven't yet, read all M&A articles here: http://mba-mondays.pandamian.com/tableofcontents/

Re: Ask HN: How to handle acquisition offer from a competitor?

#12

Post by Maro »

I'm confused, how does an NDA protect you? An NDA usually says that they won't disclose your secrets to a 3rd party. But they wouldn't have to, they just have to use your secrets internally to compete with you.

"... we are not looking to sell..."

In this case, you are in a good position to play it the way you want to play it. Honestly, if it's a competitor, don't give them competitive information without having a good feeling that this is for real.

Re: Ask HN: How to handle acquisition offer from a competitor?

#13

Post by trevelyan »

freejack wrote: post #8
wilfra wrote: post #7

Sounds like they want this deal more than you, so take charge. Tell them no, they can't have more information until they disclose the buy price, and even then you want a non-refundable deposit if the deal falls apart, in exchange for giving them proprietary information. I'd also consider getting a business broker or lawyer involved, to talk to them for you.

ugh no - please don't do this! this is a negotiation, not a fight. talking price on the first date isn't going to be productive because neither party has any clue what is being bought and sold. also, do you own talking. surround yourself with advisors and experts, but don't give up control of the initial deal structure. Let your lawyers close the deal, don't even bother trying to do that yourself, but never let the l…

I agree about the importance of managing the deal yourself. That said, there's definitely a way to get a sense for what the counterparty will pay without asking for an upfront price.

He needs to know how the acquiring company is thinking about the acquisition. Are they buying the technology? Purchasing a revenue stream? Buying a marketing channel? A combination of the above? If this is primarily a technology acquisition the price can be discussed independent of sensitive business data. If it is a revenue play you can talk about multiples. And if it is a marketing play you can talk about they value users. The idea is to build consensus around an informal model for how to value the business without going into detail. It requires sharing some data, but not necessarily opening the books.

I also think its reasonable to have a non-refundable deposit in exchange for going through the due diligence procedure. I wouldn't consider ballpark figures sensitive for my own business, but wouldn't agree to go through due diligence without being sure it wasn't a fishing expedition.

Re: Ask HN: How to handle acquisition offer from a competitor?

#14

Post by steve8918 »

freejack wrote: post #8
wilfra wrote: post #7

Sounds like they want this deal more than you, so take charge. Tell them no, they can't have more information until they disclose the buy price, and even then you want a non-refundable deposit if the deal falls apart, in exchange for giving them proprietary information. I'd also consider getting a business broker or lawyer involved, to talk to them for you.

ugh no - please don't do this! this is a negotiation, not a fight. talking price on the first date isn't going to be productive because neither party has any clue what is being bought and sold. also, do you own talking. surround yourself with advisors and experts, but don't give up control of the initial deal structure. Let your lawyers close the deal, don't even bother trying to do that yourself, but never let the l…

I agree. Don't screw this up by taking the wrong approach.

Remember the HN article about the one guy who tried to negotiate his sneaker deals by himself and overplayed his hand and lost out twice.

https://news.ycombinator.com/item?id=3466887

The company offering to buy you can't make an offer or even a ballpark offer because they have no idea what your company is actually worth. It might be a mess of Visual Basic code behind the scenes, or it could take 10 people to keep the server running, etc. Also, you could be faking your revenues, so they can't put any offers down before they know you're for real.

I would suggest contacting a lawyer who is familiar with this and getting a good understanding of what your risks are by disclosing this information, but you also don't want to scare off the buyer.

Re: Ask HN: How to handle acquisition offer from a competitor?

#15

Post by mischaell »

There will always be a risk that you are going to disclose information that they could potentially use against you but people tend to overrate this risk. The biggest risk comes from continued distraction in a deal process affecting the focus of your team on execution.

I don't think your deposit idea is realistic but I might be wrong. Here is what I would do: Ask them for a hypothetical bid and their valuation model (factor assumptions) behind it. This way you could model their bid on your real data without having to disclose it and see whether you would be happy with the price.

If they are not prepared to give anything away without more information there is a high chance that their behaviour is predatory and you should pass.

Re: Ask HN: How to handle acquisition offer from a competitor?

#16

Post by asg »

freejack wrote: post #6

I'd try to focus the initial conversations on understanding why they view your company as a strategic fit for their plans, their view of how the market may develop, etc. From there, you can get into what the integration of the two companies might look like (do they want you and your team to stick around, are they more interested in technology than customers, etc., etc.) There are a ton of things you can engage them w…

This is good advice.

There are a couple of things I'd add. If you're more than just a couple of founders, ensure you have a watertight no-solicitation agreement, in addition to an NDA. More than information, employees who know the domain are valuable to the competitor.

Finally, the one overriding thing to keep in mind for all offers -- dont let it be a time or energy sink. Its easy to fall into that trap, if the first couple of conversations are productive.

Re: Ask HN: How to handle acquisition offer from a competitor?

#17

Post by meiji »

forcer wrote: post #5
meiji wrote: post #2

Well that's the problem everyone has with competitor acquisition; how much of it is a business info harvest and how much is real. How about sitting down with them to talk, getting a feel for what they're actually about (asking if they have the money, what the terms might be etc) and then if you're still unsure, "sell" them exclusive rights for a period. It's not ideal and a lot of this is done by feel to be honest as…

We already had a sitdown, we had a feeling that they are a serious buyer and also believe they have enough cash for the transaction but its just our feeling. We had offers in the past via email but they were probably fishing expeditions, this time its probably not but since we are not looking to sell we thought to get some additional protection using the deposit. However, I have not found any advise how to structure…

Essentially, you can "sell" rights to negotiate with you exclusively. It's often used so that the seller can focus on a single party but gets a reasonable payoff if the sale doesn't go ahead for any reason. The other party therefore has to commit resource and won't just do it for the sake of doing it. I've usually seen it done when there are, say, 3 or 4 interested parties to narrow it down to 1 in the first instance. On some occasions the party that had exclusivity drops out and it's either a good thing as the other parties are still there or a bad thing as a serious buyer dropping can raise alarm bells.

Re: Ask HN: How to handle acquisition offer from a competitor?

#18

Post by gyardley »

Just be open and negotiate in good faith, or you'll cock up your potential acquisition. No demanding weird terms - it's only a 7 figure transaction. Running up their legal bill and being a pain in the ass will only hurt you.

If you've got a reasonable worry that revealing a particular bit of information will materially damage your business should the negotiations fail, this you can initially withhold, with an explanation that it's sensitive and you'd like to wait until things are further along. But the vast bulk of the information request should be fine, and if you want to sell, you should provide it.

Re: Ask HN: How to handle acquisition offer from a competitor?

#19

Post by forcer »

mischaell wrote: post #15

There will always be a risk that you are going to disclose information that they could potentially use against you but people tend to overrate this risk. The biggest risk comes from continued distraction in a deal process affecting the focus of your team on execution. I don't think your deposit idea is realistic but I might be wrong. Here is what I would do: Ask them for a hypothetical bid and their valuation model (…

Thanks. This is really helpful. I have been thinking about the concept of valuation model, but in a different wording (like previous commenter esun told , our revenue is between X and Y etc). I guess asking them to provide some kind of valuation based on what their growth strategy, assumptions on existing revenue are will be more helpful indication whether they are serious, rather than extracting deposit which may be discouraging and also legal burden for them.
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