One, keep everything short and crisp and clear, reply to what is asked, and no more, they [the buyers] are not interested in the past or the future or the emotion involved, all that doesn’t concern them. Second, any private equity firm which acquires you will do a quality of earnings analysis. Quality of earnings analysis is an extremely detailed due diligence done from a financial perspective that will rip apart everything for a small company. They will do everything in a massive Excel sheet, and they will pick out faults and ask for explanations, and most of the startups don’t even know this when they give their data. Third, choosing the right legal team is very important. You can’t go for a very big one because they say unless you have a $100 million deal, we can’t do it. You can’t go very small— they don’t have the time and expertise, that becomes an interesting challenge in itself.
We have made one acquisition. A few acquihires here and there and one proper product acquisition. One key piece of advice I have is to be very sure about what your go-to-market will look like—is there enough market, the competitive landscape of that product line, business line, and so on. This is because, technically speaking, you are entering a new market. You don’t have to realize all of them after you have made an acquisition. If I am acquiring something, I don’t want a third-grade product in the market because it then becomes my problem to make it into a first-grade product. If it is already a first-grade product, I would rather pay a premium to get it and get the founding team to continue to
BE VERY SURE ABOUT WHAT YOUR GO-TO-MARKET WILL LOOK LIKE—IS THERE ENOUGH MARKET, THE COMPETITIVE LANDSCAPE OF THAT PRODUCT LINE, BUSINESS LINE, AND SO ON.
— RITESH ARORA
ensure that it is a first-grade product. That is my way of thinking.
The initial step [even before M&A] around expectation alignment and guard rail setting is the key. For example, if the acquirer offers a part-equity deal, it might be a no-no for some investors. Do not discover this at the last moment.
The entrepreneur always wants to win. The person has done hard work, they have gone through a lot of grinds, so you have to give them a win, and then you have to handle them. Speaking from experience, that’s what we did: handled them like a founder. You have to give them the respect of a founder. The integration is very tough because they come with the founder’s mindset, but your employees treat them differently from any other employee. That bridging is very important— those first 30 to 90 days. How do you sensitize your team so that they give them some respect? Always remember: they are bringing in new knowledge and a new thought process. The takeaway is to understand the emotion of the entrepreneur, give them the win, and make them comfortable in your organization.
I think to me a hard fact is that your financial discipline is the single most important thing. When I say financial discipline, I mean clean accounting because you know recognition is a massive issue. We can recognize this way or that way. Following the proper International Financial System principle, it has to be very, very clear. I would suggest quarterly audits, not yearly audits. Indian companies are used to doing yearly audits. Your intellectual property auditing has
FROM MY PERSPECTIVE, WHAT SHOULD NOT CHANGE IS TRANSPARENCY. I THINK, YOU KNOW, YOU ARE BASICALLY IN A SITUATION WHERE YOU ARE GETTING MARRIED. IT IS VERY, VERY IMPORTANT—WHETHER YOU ARE A BUYER OR A SELLER— TO BE VERY, VERY TRANSPARENT WITH YOUR OVERALL STRATEGY, INTENT, AND BEING UPFRONT ON WHAT YOU INTEND TO DO.
– BHANU CHOPRA
AT THAT TIME, I DIDN’T HAVE THE KNOWLEDGE THAT WE CAN ACQUIRE TOO. THEY WERE A SMALL COMPANY BACK THEN, AND WE SHOULD HAVE ACQUIRED THEN; WE DIDN’T REALIZE THAT IT WOULD CREATE TROUBLE LATER.
— PALLAV NADHANI
to be very clear—where the intellectual property is, is the intellectual property clean, are you using third-party liabilities, are all the open GL licenses properly taken care of, etc.
Are the board meetings happening on time, are they following the local laws everywhere and in the headquarters wherever you are? My biggest key learning is that 50 percent is about financial discipline. As they say, truth always shows in accounting. You can’t go away from that. If you run the company as if you want to sell today, you will always be ready to be acquired or to acquire. Financial discipline is really the most important; one single piece that I would say is linked to transparency and everything else.
From my perspective, what should not change is transparency. I think, you know, you are basically in a situation where you are getting married. It is very, very important—whether you are a buyer or a seller—to be very, very transparent with your overall strategy, intent, and being upfront on what you intend to do. Of course, whatever disclosures have to occur, you have to be very transparent, honest, and right in assuming that most people take that for granted, but it’s also very important to be clear on your strategic intent wherever you are sitting—on this or that side of the table.
- ROPE IN AN INVESTMENT BANKER
- MAINTAIN A CENTRAL DATA STORE
- HIRE THE RIGHT LEGAL TEAM