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I almost sold Baremetrics for $5M

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Re: I almost sold Baremetrics for $5M

#231

Post by ablekh »

einarvollset wrote: post #228
ablekh wrote: post #203

Earlier quoted context omitted.

Hmm ... Where did you get these multiples from? Based on what I've seen in many sources (here's one that I have at hand, by McKinsey: https://www.mckinsey.com/business-functions/strategy-and-cor... ), high-growth tech/IT startups are valued (and, I assume, could be acquired) at > 15x, sometimes even > 20x.

Public company multiples, VC investment valuations and lower middle market PE exit multiples are very different markets. The multiples come from direct personal experience.

Understood. Though I would expect some overlap between the first two markets. I'm curious about reasons and rationale, underlying potential differences between valuation and/or multiples within relevant categories. Any pointers or links to corresponding content, by any chance?

Re: I almost sold Baremetrics for $5M

#232

Post by Misdicorl »

nugget wrote: post #226
Misdicorl wrote: post #185

Earlier quoted context omitted.

You're advising people to play poker (guess intentions face to face), but only have your side put chips on the table?

Actually the opposite. If chips represent time, I'm advising that the seller force the buyer to spend time (in person) with them to reflect commitment. A classic example is whether or not the seller can get a meeting with the buyer's CEO (depending on the relative sizes of the two companies, it could be a lower level exec too). A CEO will not waste his or her time on a dozen meetings with a dozen different companies…

This still requires the selling side to guess the buying side's time commitments/availability and intentions. The escrow cuts through all the bullshit.

Clearly we will disagree with eachother here; but I am truly at a loss for how a 1 hour lunch is commensurate with a month+ of discovery effort.

Re: I almost sold Baremetrics for $5M

#233

Post by asharma24 »

_e wrote: post #99
Misdicorl wrote: post #79

Earlier quoted context omitted.

Require 10% of the deal in escrow after the first 2 weeks in the discovery phase. If the deal doesn't go through, the amount in escrow defaults to you. If they jerk you around on the escrow, cut them loose, they're not actually interested in acquisition

Great point. This is what happens in a real estate. A letter of intent should have earnest money deposited into an escrow (because the offer is being made in "earnest") and each contingency should have an expiration date. Upon expiration of the due diligence contingency, for example, the earnest money deposit becomes non-refundable and credited towards the purchase price. If the buyer defaults after the due diligence…

bump. also looking for this.

Re: I almost sold Baremetrics for $5M

#234

Post by throw3982 »

mlyle wrote: post #224
thethimble wrote: post #199

Earlier quoted context omitted.

There's a lot of misconceptions here around how corporate acquisitions work. Here's typically how things work in practice when companies are sold: - Seller attempts to garner interest, sometimes facilitated by an investment bank. - Buyers indicate interest informally, eventually culminating in a Letter of Intent (LOI) from each buyer indicating a price and other important factors related to a deal. - A cricitical com…

The way it's worked for me is more like: 1. Buyer approaches seller for strategic reasons. 2. Seller tries frantically to probe interest elsewhere while early acquisition discussions continue. 3. Buyer writes a LOI, seller demands reverse break-up fee and changes, tries to stall to continue discussions in #2 without scaring away buyer. 4. Eventually some LOI gets signed.

What does "changes" mean in this context and what constitutes a reasonable reverse break-up fee?

Also in #2, does "probe interest" mean getting them to sign a LOI?

Re: I almost sold Baremetrics for $5M

#235

Post by throw3982 »

thethimble wrote: post #199
mlyle wrote: post #178

Earlier quoted context omitted.

Deals take a lot longer than 7 days to close-- especially real acquisitions, but even asset purchases usually take months.

There's a lot of misconceptions here around how corporate acquisitions work. Here's typically how things work in practice when companies are sold: - Seller attempts to garner interest, sometimes facilitated by an investment bank. - Buyers indicate interest informally, eventually culminating in a Letter of Intent (LOI) from each buyer indicating a price and other important factors related to a deal. - A cricitical com…

Forgive my ignorance but if a buyer indicates interest, is it ok for the seller to ask for a LOI?

Or if the buyer doesn't mention it explicitly, does it mean that they're not serious enough?

Who should mention the first amount of money first, buyer or seller?

Re: I almost sold Baremetrics for $5M

#236

Post by mlyle »

throw3982 wrote: post #234
mlyle wrote: post #224

Earlier quoted context omitted.

The way it's worked for me is more like: 1. Buyer approaches seller for strategic reasons. 2. Seller tries frantically to probe interest elsewhere while early acquisition discussions continue. 3. Buyer writes a LOI, seller demands reverse break-up fee and changes, tries to stall to continue discussions in #2 without scaring away buyer. 4. Eventually some LOI gets signed.

What does "changes" mean in this context and what constitutes a reasonable reverse break-up fee? Also in #2, does "probe interest" mean getting them to sign a LOI?

> What does "changes" mean in this context and what constitutes a reasonable reverse break-up fee?

It's unlikely whatever the buyer throws over the wall first is exactly what you want to sign.

> Also in #2, does "probe interest" mean getting them to sign a LOI?

If company A approaches you, wanting to acquire you, you want to really quickly figure out if company B, company C, and company D are interested before you commit to a period of exclusivity with A.

Re: I almost sold Baremetrics for $5M

#237

Post by throw3982 »

mlyle wrote: post #236
throw3982 wrote: post #234

Earlier quoted context omitted.

What does "changes" mean in this context and what constitutes a reasonable reverse break-up fee? Also in #2, does "probe interest" mean getting them to sign a LOI?

> What does "changes" mean in this context and what constitutes a reasonable reverse break-up fee? It's unlikely whatever the buyer throws over the wall first is exactly what you want to sign. > Also in #2, does "probe interest" mean getting them to sign a LOI? If company A approaches you, wanting to acquire you, you want to really quickly figure out if company B, company C, and company D are interested before you co…

Thanks!

> If company A approaches you, wanting to acquire you, you want to really quickly figure out if company B, company C, and company D are interested before you commit to a period of exclusivity with A.

Let's say that company A, B and C are interested (with A being interested the most), what would be the next step? Can you get an offer without a LOI?

Re: I almost sold Baremetrics for $5M

#238

Post by unlinked_dll »

brianwawok wrote: post #223
unlinked_dll wrote: post #159

Earlier quoted context omitted.

True, but layoff + severance < layoff + severance + liquidity event

How about cases where due to liquidity preferences, no one but founders get money at the liquidity event? A small exit is often 0 for employees.

then you worked at a bad company with a bad outlook and should have been prepping to leave anyway?

Re: I almost sold Baremetrics for $5M

#239

Post by Shpigford »

mrtksn wrote: post #210
thethimble wrote: post #199

Earlier quoted context omitted.

There's a lot of misconceptions here around how corporate acquisitions work. Here's typically how things work in practice when companies are sold: - Seller attempts to garner interest, sometimes facilitated by an investment bank. - Buyers indicate interest informally, eventually culminating in a Letter of Intent (LOI) from each buyer indicating a price and other important factors related to a deal. - A cricitical com…

In the OPs case, the buyer was not disclosed. Did they lose any reputation? How to roll the ball to let people know that someone screwed you up without damaging own reputation?

Brokers are pretty well connected and ours made sure to spread their name around. They'll have a hard time buying a company through typical routes for a while.

I'm also perfectly happy to let anyone know in private who it is. :) DM me on Twitter (@Shpigford) or email: josh@baremetrics.com

Re: I almost sold Baremetrics for $5M

#240

Post by Shpigford »

kresten wrote: post #166
trentnix wrote: post #143

Earlier quoted context omitted.

Agreed. It’s perfectly acceptable for a business to ask for (or even demand) earnest money when signing an LOI. The buyer, via the LOI, is asking for the right to negotiate with you exclusively. That’s worth something and if they refuse, that tells you how serious they really are. The amount of that earnest money is up to the parties involved - 50k might be high for some situations, low for others, and just right for…

You’d be crazy to guarantee exclusivity when negotiating sale of your company. It would make more sense to give an absolute assurance that you’re talking to all possible buyers and that the potential buyer should understand that you might easily sell at any moment. Exclusive negotiation is the precise opposite of a good approach. Indeed implying that there are other negotiating parties is almost an essential componen…

For better or worse, exclusivity in an LOI is the norm. Obviously, you don't have to accept the LOI, but any LOI that is missing exclusivity is usually a sign of inexperience and honestly is cause for concern.
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