- Short Description:
- The highest prices are paid for companies where the acquirer is motivated. Some believe that acquirers will be the most motivated when they already know a company, have been interested in the product/service, and identified an opportunity for working together themselves. Therefore, the thinking goes, the company should build value, be known in the industry, and be open to partnership deals with potential acquirers who can get to know the company that way.
- Benefits:
- High Price: if executed successfully, this approach should lead to a high price for the company.
- Good Fit: While exiting shareholders may be less focused, founders and other management often want to see a good fit between the target and acquirer’s culture and strategy. If there are existing conversations and even partnerships, then the two companies will be able to explore that fit.
- Clarity: having a shared plan among management and the board about how to approach the issue of exit is beneficial.
- Warm Leads: even if the winning bidder does not come from this strategy, it can provide a number of warm leads when it is time to sell the company.
- Trade-offs:
- Don’t Forget Sales Skills: Company management often still needs to use sales skills in negotiating a transaction when the time comes.
- Don’t Forget Other Bidders: While the highest bidder may come from this category, it is often important to have other options. Should a bidder make the first move, it is often best to invite other bidders into the process to keep competitive tension and urgency.
- Management Time: Management time spent on being well known in the industry, may or may not contribute value earlier than a full company sale.