5 Tips for a Smooth Acquisition

July 31, 2015 • Blog Post • By Lak Ananth, Vice President of Corporate Development for HP and Managing Director of Hewlett Packard Ventures

Venture capital insider Lak Ananth shares advice for entrepreneurs navigating the world of acquisitions

Tech startups have created a wealth of innovation thanks to growing R&D budgets and a robust venture capital ecosystem in Silicon Valley and beyond. Large tech companies see the advantage of having this innovation at their fingertips, and more and more frequently are turning to acquisitions to drive growth. Acquisitions are an important innovation strategy for large companies to fill gaps in the portfolio, scale quickly, accelerate time-to-market and add expertise to their leadership team. As a result, entrepreneurs and venture capitalists now see acquisitions as a more likely exit than going public.


Looking ahead, the pace of acquisitions will continue to accelerate as the next generation of large technology companies joins the cadre of well-established acquirers. Today's successful entrepreneurs are well informed on how to bootstrap a company, raise money, hire a stellar team and grow rapidly but now more than ever need to know how to face potential suitors.


Here are a few tips to enable founders, management teams and investors of young companies to be better prepared for an acquisition and to maximize value of their company if the opportunity arises.


1. Build your company for the long-term


Building fundamental value in your business trumps building-to-be-acquired, every time. While its certainly sensible to prepare for an exit, your company's future should notdepend solely on an acquisition. Your priority is establishing and growing a sustainable, standalone business. Excelling at your raison dtre - by innovating and building great products, beating competitors in the market and attracting the best talent will make you a more attractive target.


2. Curate an experienced board


While even repeat entrepreneurs are lucky to see two or three acquisitions throughout their entire careers, top-tier venture firms and investors go through multiple exits each year - and pick up invaluable insights along the way. As you search for investors and board members, take a look at their track record for acquisitions. A seasoned board will know when to be patient and not sell too early, while also helping you understand the rationale when it is indeed the right time and price to sell. Make sure each board member brings a particular area of expertise to the table and has enough stake in your company to fight for its success.


3. Develop strong relationships over time


Relationships build trust and will matter when you are ready to sell. Savvy startup CEOs and founders get to know business owners and deal leads at multiple potential acquirers over time; having more than one acquirer at the table maximizes the value of an acquisition. An existing commercial relationship, preferably one that generates revenue, will give a potential acquirer confidence in the future of your business. This will also help you understand their business goals and processes and provides a preview of how their business leads work together with the deal team.


4. No surprises


As you deepen these relationships, be straightforward and transparent to avoid any unexpected issues down the road. Once you get to the due diligence phase of a potentialdeal, your company will go through a thorough examination of its business, legal and financial underpinnings. Outstanding lawsuits, intellectual property issues, nonstandard bookkeeping, convoluted customer contracts and other surprises that pop up in diligence can derail an acquisition. Avoid these hiccups by being up front about key issues that are likely to be uncovered in the due diligence process.


5. Keep employees happy


Acquirers are not just investing in your current business but in its next generation, which will be carried out by your talented employees. Because of this, it's important to take steps early in the acquisition discussions to help ensure retention of key employees. Initial conversations around key employees scope of responsibility, reporting structure and expected deliverables will help create an environment for them to flourish and continue to grow the business as part of the acquirer.

 More than 75 years ago, Dave Hewlett and Bill Packard created the original Silicon Valley garage startup. Now, Hewlett Packard Ventures is helpingthe next generation of entrepreneurs invent the future.