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So your company is about to be acquired. When deciding if you should stay on, put yourself in the buyer’s shoes. One of their biggest fears is acquiring a startup that turns out to be a dud or too niche or complex to run without the founder. Okay, most entrepreneurs know to only acquire startups they have de-risked and understand. But when you make that transition easier, you could find them a little more sympathetic to your purchase price goals.
Remember those ‘70s IBM mainframes on which half the world’s banking infrastructure relies? Only a handful of people know how to program them — and it can be the same with founders and their startups. They know how to operate, maintain and develop their companies, how their unique components interact and what special care and attention they need.
Unless a buyer intimately knows your industry, tech stack, customers, employees, vendors and everything else involved in your business, they’re going to need a little help from you before they’re confident enough to take the reins. This, perhaps paradoxically, shifts the balance of power in your direction: The buyer could potentially need you for the acquisition to work.
In other words, staying on after acquisition is a point of negotiation that could net you a higher purchase price if you play your cards right. Of course, it all depends on what your goals are, but stalling your post-acquisition plans for a year or even 18 months if it means a five or 10 percent uplift in your purchase price might be a good idea.
But before you offer staying on to a buyer, consider the following points first. You probably won’t retain as much control as you did before the acquisition, and if you and the buyer butt heads, that transition period could feel very long indeed. But if you predict a sunny outlook, by all means, negotiate a longer transition period to boost your payout.
Related: Before My Startup Launched a Single Product, I Spent Every Dollar We Had Acquiring a Competitor
Do you like the buyer?
Although these considerations aren’t in any particular order, I’ve put this one first as it’s super important. Regardless of how much the buyer pays for your startup, it probably won’t be enough to compensate for an intense dislike of them. Trust me: Working with them will be a nightmare, and you don’t want your opinions of each other to deteriorate to the point of litigation or worse.
But if you get on well together, it might be fun to stay on. You might even learn something from the buyer. The early part of your entrepreneurial career is all about learning from those around you. Staying on could be a master class in post-acquisition growth strategies (assuming the buyer has some) that you could apply to your own acquisitions later.
Do your goals align?
There’ll be nothing worse than watching the buyer bury your business or take it in a direction you think is wrong. You should’ve asked about the buyer’s goals while negotiating your acquisition, so you should know what their intentions are. Now imagine, as best you can, how you’ll feel helping the buyer fulfill those intentions: Happy? Sad? Frustrated? Inspired? Scared?
Once you’ve done this simple thought experiment, you’ll have a good idea if you want to stay on post-acquisition. Your goals don’t have to match, of course, and you might need to internally compromise, because the buyer has free reign to do as they please with your startup. But the transition will be a lot easier if your goals align more than they don’t.
Related: 10 Ways to Negotiate a Higher Purchase Price for Your SaaS Startup
What will you do?
Chances are, you’ll be educating the buyer on how your startup works, introducing them to your teams and transferring your responsibilities to them. But after that, what comes next? If you stay on for a year, consider what work you’ll be doing. What does the buyer expect from you? Will you need to go into an office, for example? Will you set your hours? What about vacations?
You were probably a leader before, but with a new owner on board, you’re very likely going to be demoted to some other capacity, such as operations (unless you’re lucky enough to score the coveted consultant role). Imagine walking into the office on Monday morning and not being in charge anymore. If you can handle that, the transition won’t be such a drag for you.
Will you work with the same people?
Another thing to consider is your colleagues. Who will you be working with? It might be fun collaborating with your old team. But then again, you might be working with the buyer’s team — whom you probably don’t know. The success of a long transition then depends on how well you get on with them. Before you decide to stay on, research who you’re going to work with, and if possible, spend some time with the new team to get to know them better.
Related: No Big Startup Idea? No Problem. Here's How to Buy a Business.
What are your long-term goals?
Before agreeing to anything during negotiations, consider what you want to get out of the acquisition. What are your long-term life and career goals? How will staying on after acquisition impact those goals? For example, you might want to start a new business, retrain or even acquire a startup yourself. But as these are time-critical aspirations, consider how a long transition would affect your career.
Equally, you might excuse a change of role in the new entity if it helped you learn or practice a new skill. Perhaps you’ve wanted to experiment with paid marketing or optimizing your operational model but never had the time to do so in the past. You might even excuse poor leadership if it meant you could start or continue working on something you’re passionate about.
Would the buyer compensate you adequately?
The buyer expects a transition period in which you help them settle in as part of the purchase price, negotiated during the final stages of your acquisition. But if you decide to stay on longer than three months, say, you should also consider negotiating a salary or stipend that reflects your contributions to the company post-acquisition. Money isn’t everything, but shares in the new business would keep you motivated if something else was missing.
The transition period in most cases helps to de-risk the acquisition for the buyer, but don’t forget that although they’ve acquired your business, you are not (necessarily) part of the deal. When a private equity firm acquired my first business, in 2017, I stayed on for one month. Granted, the firm knew what to do with my business (we’d prepared an extensive operation manual), but even so, I think it would be odd for a buyer to ask you to stay on longer than, say, six months.
If the buyer is willing to pay your asking price only if you stay on for 12 months post-acquisition, it’s only fair that you ask to receive a salary during that period. If they refuse, ask yourself whether your consideration (what M&A professionals call the money you walk with when the deal closes) is adequate compensation for your time after the business changes hands.
I can’t tell you whether or not to stay on with your company after it’s been acquired, but I can say this: Most things in life are a compromise, but that needn’t mean capitulating to the buyer’s every whim. Consider your goals first, decide if you can spare the time for a longer transition, and whether or not the compensation is worth it.
Related: 7 Examples of When You Should Acquire a Startup Rather Than Build One
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January 27, 2022 at 09:00PM
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Should You Stay on After Your Startup Is Acquired? - Entrepreneur
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