What are strategies to justify a higher valuation for my company in an acquisition?
The easiest “strategies” to get a higher price in an acquisition — which admittedly are very hard to deploy quickly:
- Raise a venture round at a high price. This is controversial “advice” because it can backfire on you. But the reality is, many M&A prices are driven by a multiple of the last venture round — at least in deals where the acquirer really wants to get it done. Yammer famously had to be at $1.2b — because the last round was at $0.6m. My first start-up sold for exactly 5x the total all-in valuation of the first and only round. Corp dev departments know this, and so they get the company ready to “pay up” at least 2x-3x the last round price to get a deal done. But if the deal isn’t hot, this can backfire. It can turn off an acquirer if the valuation in the last venture round is too high. They can just pass because it looks too complicated to get to an acceptable price.
- Get another offer. Obvious but true. Every dealmaker moves into “deal mode” when another offer comes in. If you don’t have one, hire a banker. They can manufacture one, or at least the appearance of one. More here: If You Sell Your Company, Use a Banker | SaaStr. LinkedIn was bid up by Salesforce. GitHub by Google. Etc. etc. This almost always works. It is hard for anyone to want to bid themselves up. But pretty easy to make a binary decision when a 3d party drives the price up.
- Walk — but probably do it nicely. This works, too. I did this at EchoSign. If you say “thanks but no thanks” at a given price, and are respectful but 100% clear … then if the acquirer really wants to do the deal, they will offer more. Often. But … not always. And sometimes, not for a while. So if you walk on price, you probably gotta mean it.
- Grow. This works, too. Take your time. Grow from $5m to $10m ARR. From $20m to $40m ARR. If they still want you then, they will pay more. This works especially well in SaaS. Just bear in mind, priorities change. And they may lose interest in buying you once you’ve grown a bit bigger.
Published on June 2, 2021