A strategic acquisition is a different animal. The strategic acquirer will value your company based on how much more of their product they can sell, which is exactly what Business Objects (now SAP) did when they bought Nick Kellet’s business, Next Action Technologies, for more than eight times revenue.
Most financial acquirers will arrive at an offer for your business by calculating the profit they expect you to make and deciding what they are willing to pay today, for your profit stream in the future. Because you are competing with lots of other places that the acquirer could invest their money, multiples are usually in the low to mid-single digits of your pre-tax profit.
A strategic acquisition is an entirely different animal.
A strategic acquirer will value your company based on how much more of their product they can sell. Knowing who the strategic acquirers are in your space and positioning yourself accordingly is what we handle during The Short List Builder, module 11 in The Value Builder Engagement. Get started for free by getting your Value Builder Score.
Click to Tweet: The difference between a financial & strategic acquirer & why it matters in your #business #valuation.
About Nick Kellet
Kellet is the co-founder of the social-list content platform Listly, which combines crowdsourcing, content curation and embeddable lists to drive high-level community engagement, live inside your blog posts.
Kellet sold his visual segmentation startup, a tool that exploited our love of Venn diagrams to discover and express the business questions people needed to ask, to Business Objects (now SAP) in 1999.
Instead of the predictable book Kellet, a passionate innovator, self-published a board game. His game, GiftTRAP, based on the act of gift exchange, is translated into 12 languages and won more than 20 awards globally, including a Spiel des Jahres prize (the gamer’s Oscar).
Click to Tweet: [#Podcast] How one entrepreneur got an 8X REVENUE offer for his business via @Nickkellet.
Some Highlights of the Show
Business: Next Action Technologies
2:30: Started in 1997 in the business intelligence space with query and reporting tools.
3:06: “We spotted a business problem… People struggle with the ‘ands’ and ‘ors’.”
6:07: “We were demonstrating at a trade show … and met Business Objects (the acquirer).”
7:38: “It’s funny how alliances can actually structure and direct your [business] path.”
9:26: $1M in revenue by 1999.
11:48: “It was like a series of dominoes, from licensing in the UK to licensing globally.”
12:05: “I always thought Business Objects was on the train track and we stuck our tiny little truck across their train track. They hated losing control of the sales process.”
12:45: Difficulty ‘courting’ other buyers.
14:18: “The first [negotiation]: their M&A guy got involved and he was a nightmare… That was my intuition; he eventually got replaced.”
15:35: The first offer: $1M and a trip to Acapulco.
19:00: “Any big software company is a machine that’s repeating a process… A startup is a machine that is actually solving a new problem, creating a new category.”
Click to Tweet: Any big company is a machine repeating a process… a startup is solving a new problem, creating a new category.
19:46: A stock-swap offer.
20:39: “The one thing they didn’t tell us … the prerequisite to the legality of a stock swap is that there can be no stock transactions in the previous six months.”
22:38: The jump to an $8M to $10M offer.
23:45: “It was my perception that they should have given us more education, more hand holding … but they didn’t because he had never done it before either.”
24:20: “It was nightmarish; I remember going away that weekend, tail between our legs.”
24:42: “It took about six weeks after that and we were back at the table, miraculously with the same amount of cash.”
24:48: “Sometimes in these situations, you are being told they can’t do this, they can’t do that. It’s often not true; it just suited them to do it this way.”
Click to Tweet: [#Podcast] Sometimes you’re told no, they can’t. Often not true; it just suited them to do it their way.
26:54: “Post deal, it was, ‘you’re going to run this like a business unit inside of this large company.’”
27:08: “We basically 8X’d the revenue and run rate, running at $8M within 18 months… It’s not rocket science; they have 100s of sales people around the world.”
Click to Tweet: We 8X’d the revenue, $8M within 18 months… It’s not rocket science; they have 100s of sales people via @Nickkellet.
28:55: “After 18 months … I actually pitched them [on their new products], to go and build them.”
31:46: No buy-out conditions.
36:50: “There’s this fear of being a one-hit-wonder.”
37:18: “If you’re going to go and be an entrepreneur, then go and enjoy every moment of it. Don’t plan to enjoy it later; that’ll be a big mistake.”
38:30: list.ly
Click to Tweet: The difference between a strategic acquirer and a financial acquirer with @Nickkellet.
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Article LINKFor additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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