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Re: undefined

#41

> we've received a low 8 figure verbal offer over the phone today. Try to get something on paper. > they could fire us on day #2 and we'd have only the token money we got up front to show for it. That's something you should take care of contractually. > the offer is low by about 20% from what would make us "happy" to sell for. 20% is not a whole lot to be off for an opening offer, but keep in mind that if you go for…

A lawyer isn't the answer for everything.

Get an investment banker who has M&A experience, or alternately management consultant who can argue with the acquirer about the valuation.

Re: undefined

#42
Remember the key to negotiations: what's your best alternative to a negotiated agreement? In this case it sounds like you don't need this deal at all -- you're highly profitable, right? Maybe there's some concern that if you walk away, this company could build their own whatever-it-is and beat you in the market, but it will take them some time and is not a sure thing for them.

The other thing to be aware of is the anchoring principle in psychology. By lowballing you at the outset, they make the range of offers that will seem reasonable to you.

I have not sold a company. But this sounds like a ridiculous deal to me. 3x revenues, in stock with a 4-year vesting schedule? For a profitable business??

There's a key number here you haven't provided: what's your revenue growth rate? If your revenues are growing slowly, then 3x revenues in cash might be a reasonable multiple. But if you've been growing at 40% annually, then 3x is way too low; 6x is more like it, and 8x may not be out of the question, depending on how large the ultimate market appears to be.

The big question for you is how you would feel if the deal fell apart. While you chew on that, you might want to see if you can find any other potential acquirers.

Involving bankers would change the tone of the discussion, eh? To what, I wonder? Really, this makes me angry -- it sounds like they're trying to take advantage of your inexperience.

It's your call, of course. But reading this makes me hope you tell them that their offer isn't even worth discussion, and walk away.

Re: undefined

#43
post #32

It's typical for the other side to open negotiations with crummy conditions, not different from what happens millions of times a day in bazars all over the world. I would venture a guess, that the potential buyer is aware of your inexperience, and trying to pull one on you. Don't let them FUD you with comments like 'changing the tone' once legal representation gets involved. They clearly seem to have invested time an…

[deleted]

Re: undefined

#44

Earlier quoted context omitted.

Just to address this, we will not receive another offer. Period. It's annoying that I can't fully explain that without blowing our cover, but you'll just have to take my word on it :)

> Just to address this, we will not receive another offer. Period. >> If you're really doing well and in a growing market, I'll offer you 3x revenue in cash myself, that'd be a steal. You just did.

:)

Re: undefined

#45

In the worst case, they could fire us on day #2 and we'd have only the token money we got up front to show for it. To me, this would be enough to immediately reject the offer. I don't believe in doing deals which make my worst case worse unless I will be in a position where I can prevent the worst case from happening -- and it doesn't sound like you'd have any way to avoid getting screwed here. they've expressed to u…

> Any time someone tries to convince you to not consult your advisors, run away immediately.

In most cases, you're absolutely right. With investment bankers, completely different.

Investment bankers will turn this into a process, try to pick up multiple bidders, and add to the complexity of trying to get the deal done. In general, bankers (not lawyers!) can be harmful to a deal.

They could be telling him that they're in for a simple deal, but if it gets complicated, that's not worth it to them.

Re: undefined

#46
post #41

> we've received a low 8 figure verbal offer over the phone today. Try to get something on paper. > they could fire us on day #2 and we'd have only the token money we got up front to show for it. That's something you should take care of contractually. > the offer is low by about 20% from what would make us "happy" to sell for. 20% is not a whole lot to be off for an opening offer, but keep in mind that if you go for…

A lawyer isn't the answer for everything. Get an investment banker who has M&A experience, or alternately management consultant who can argue with the acquirer about the valuation.

A lawyer you can typically hire on an hourly basis, and on reasonably short notice, an investment banker will likely want to become a part of the deal. A (good) lawyer will likely also have a considerable network of contacts one of which might be suitable as a lead negotiator.

> Get an investment banker who has M&A experience

That's a possibility but a far more complicated one and it will take quite a bit of time to find a decent one. But it would be a good choice if they have a good rep and can be easily found, my personal experience with investment bankers is an extremely mixed bag.

> alternately management consultant who can argue with the acquirer about the valuation.

That would be useful anyway, but there will be time enough for that, after all if a deal this size goes through there will be up to a month of hammering out the details of the deal as well as due diligence.

If they're 'in the ballpark' then you could simply respond with a counter off offer a bit higher than what is acceptable to you to build in some room.

Then use your own cut off value to guide a walk-away decision.

Re: undefined

#48
post #36

Congrats! I think that you can be upfront with them. "Look, there are a couple of things that make us uneasy about this deal. Mainly, we feel the offer is a little low and that the vesting schedule is a little long. The combination of the two makes this a very difficult deal to consider. I am not saying we don't want to consider it, but just that since we assume you are wanting to work with us for at least the next 4…

That's pretty good.

Instead of "a little low", say "low". Instead of "a little long", say "long". Don't qualify. That way it's even stronger.

"We feel the offer is too low and that the vesting schedule is too long."

Re: undefined

#49
How the hell do you have a 5-year-old, highly profitable company with multiple founders and $3MM - $10MM in annual revenues, and think that HN is a better place to ask this than to your attorneys and bankers?

Re: undefined

#50
post #38

Earlier quoted context omitted.

Ask for double of what you would accept, not just a bit more.

Agreed, make an outrageous counter offer, you know, cost of living and all that. The reaction will shed some light on where they really stand.

Double of what you want isn't outrageous :) 10x would be. Double let's them make a lower counteroffer that you're both happy with.
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