There are two or three lessons we learned. First, our narrative was not right. We were dealing [with the acquisition] factually and with full transparency. M&As don’t work factually and transparently. You want to tell what the buyer wants to hear. We were engineers, and we went and spoke in the engineering language. The lawyers were looking at the risk mitigations, and our narrative on the risk mitigation wasn’t good enough, so that was one learning. Our second mistake was that while this deal was happening for us, we were never in touch with the business champions. Since we were only dealing with corporate development, we were dealing with the business team, but we did not know how it would actually be implemented. If we would have been sure about who will be using it and how, we could have convinced them, shown them some innovations that we have done, and how our product works well. Another thing we learned is that unless the deal is finalized, internally, nobody should know besides three or four very important people who are a part of the process. Even so, never tell them that this is happening until the money hits the bank account because there are a hundred reasons why a deal fails. There is only one reason for a deal to go through, and that one reason requires all those hundred to be invalidated.
Having a single bidder is the biggest mistake that cannot be solved last minute. However, during the process, the big mistakes are as follows:
- Focusing on terms that are not negotiable— things like escrow, lock-in, etc., are mandatory for acquirers. We should instead focus on the quantum of it and focus our negotiation on things that actually matter.
- Stopping selling. The job of selling the company is not over once the verbal agreement is reached. Continue to help the acquirer bolster their business case by pointing out additional synergies (aka revenue opportunities together) even during the process.
- Assuming that the deal is closed. It is only closed after the final close, which is weeks if not months away.
- Continue to run your business as usual. Grow, close deals, and focus on customer service. Any unexpected blips can impact M&A.
- Back every assertion with evidence. Nothing is more unsettling to an acquirer than the feeling that what they see (or hear) is not what they get.
M&A is very much like a sales process. You need to have a top of the funnel. You need to have somebody doing lead gen for you, and then once you sort of warm-up, there are two buckets people will fall into. One is, you know, it’s just like a sales process, you continue to knock on doors and see who is interested. Not everyone is going to be interested but you need to stay top of the mind because when they are interested to do something, usually private equity guys have a time horizon after which they need to do something, they need to exit the company that they have entered, so they will usually launch a process. As long as you are talking to them, very quickly you can establish yourself as a strategic acquirer.
I basically reached out to folks, tried to understand what are the usual pitfalls. In terms of the targets in our mind, they were very clear, we sort of had started the conversation, and I was pretty much leading the whole effort. There wasn’t a formal M&A team, but we do have one now, and it is almost a program at RateGain now on M&A. But at that point, it is like with anything, as entrepreneurs, you have got to lead from the front whenever you are trying to do something new. A lot of that heavy lifting I did initially. Once we made the acquisition, I was very concerned about the post-acquisition integration. So we engaged with a few people and consultants to help us with all those postintegration efforts.
I WAS PRETTY MUCH LEADING THE WHOLE EFFORT. THERE WASN’T A FORMAL M&A TEAM, BUT WE DO HAVE ONE NOW, AND IT IS ALMOST A PROGRAMME AT RATEGAIN NOW ON M&A.
— BHANU CHOPRA