A Founder's Guide to M&A, covering what issues to consider in deciding whether to sell your company and if so, what are the important considerations and value drivers. Created by Chip Hazard of Flybridge Capital Partners
4. CONFIDENTIAL PRESENTATION | PAGE 4
KNOW WHERE YOU ARE ON THE JOURNEY:
DIMENSIONS THAT MATTER
• How well defined is business
model
• Evidence of operating leverage
• LTV/CAC, or equivalent, calculus
• Concentration risks
• Profitability
• Depth of team
Company Maturity
• Market Potential
• Fit with important industry trends
• How disruptive to incumbents
• How strongly fit into acquirers go-
to-market channels
• Drag-along revenues created for
acquirer
Strategic Importance
• Hyper growth (>100% Y/Y) versus
strong growth (20-100% Y/Y) versus
limited growth (<20% Y/Y)
Growth Rate
5. CONFIDENTIAL PRESENTATION | PAGE 5
KNOW WHERE YOU ARE ON THE JOURNEY:
DIMENSIONS THAT MATTER
Company Maturity
StrategicImportance*GrowthRate
Hyper Potential Options Abound
Figuring it Out Steady as She Goes
Immature Mature
HighLow
7. CONFIDENTIAL PRESENTATION | PAGE 7
FIGURING IT OUT
• How much runway do we have to get
growth going?
• What is the likelihood we can raise
more capital on reasonable terms?
• Are impediments to growth structural to
the market or more related to our
company?
• Are impediments to success solved by
being part of a larger company?
• If we figure things out, does our
company have attractive business
model characteristics?
• Team motivations
• Risk of departures
• Desire to stick together
• Interest in working at a bigger company
M&A ConsiderationsCritical Questions
Buyer Universe
• Broad. Large to small cap public
companies, other private companies
Process
• Company led, relationship driven
• Product vision and cultural fit most
important
• Small bank or consultant could help with
introductions
Valuation
• All over the map, from modest “kick-
saves” to acqui-hires to decent multiples
on limited revenue
Valuation drivers
• Strength of team, willingness to stay
• Product fills critical gap or creates drag-
along revenue opportunities for acquirer
8. CONFIDENTIAL PRESENTATION | PAGE 8
HYPER POTENTIAL
• How realistic is it that we can move the
company up the maturity scale on our
own on all dimensions?
• Is the capital to drive growth readily
available on attractive terms? What do
we own now versus later? How far far
forward in time is the company being
valued?
• How large is my likely buyer universe
relative to my competitive sphere? Is it a
game of musical chairs?
• What is the likelihood the acquirer
screws things up?
• Team motivations
• Desire to make money versus desire to
have a massive impact. Risk tolerance
• As we scale on our own, do we lose
control? Do we care?
M&A ConsiderationsCritical Questions
Buyer Universe
• Narrow. Only the largest cap
companies can acquire at super high
multiples
Process
• Company led, relationship driven
• All about vision and growth
• A banker more likely to interfere than
add value
Valuation
• Super high to infinite revenue multiples
Valuation drivers
• Willingness to walk away
• Fill CEO level priority strategic gaps for
acquirer
• Multiple bidders that view company as
critical can drive value up by 2x or more
9. CONFIDENTIAL PRESENTATION | PAGE 9
STEADY AS SHE GOES
• Does the broader market environment
make now the right time to sell?
• Does our business have significant risks
that are largely outside of our control?
• What opportunities exist to bend the
growth rate upward? Should we be
buyers instead of sellers?
• How patient are my investors?
• Team motivations
• Is the team still motivated or getting
tired?
• What opportunities exist for us at the
acquirer?
M&A ConsiderationsCritical Questions
Buyer Universe
• Broad. Large to small cap public
companies plus PE firms and roll-ups
Process
• Broad outreach
• Banker can add value with
introductions, positioning and process
Valuation
• Likely to be driven by traditional metrics
and comparable multiples
Valuation drivers
• Willingness to walk away
• Significant and agreed to synergies with
buyer
• Well run process, auction dynamics to
keep buyers honest
10. CONFIDENTIAL PRESENTATION | PAGE 10
OPTIONS ABOUND
• Do we want to go public or sell? Now
versus later?
• Gut check on the business on all
dimensions:
• Is the market potential still largely
unbounded?
• Do we have strong revenue visibility?
• Is the business getting easier or harder
as we scale? Metrics improving or
showing signs if deterioration?
• Does our business have significant risks
that are largely outside of our control?
• Are the opportunities we can access if
we are public that we can’t privately?
• Team motivations
• Do we want to be public with all that
entails, both good and bad?
• Risk tolerance?
M&A ConsiderationsCritical Questions
Buyer Universe
• Medium. Large to mid-cap public
companies plus larger PE firms
Process
• Targeted outreach
• Potential to dual track, or shop the S-1
• Banker can add value and credibility to
IPO threat
Valuation
• Likely to be driven by revenue multiples
for similar high-growth public
comparable companies
Valuation drivers
• Willingness to go public or wait
• Open up strategically important new
markets for buyer
• Significant and agreed to synergies
• Well run process
12. CONFIDENTIAL PRESENTATION | PAGE 12
ABOUT ME
General Partner, Flybridge Capital Partners
• Focus on enterprise technology, with a
particular emphasis on developer-driven
companies and cloud infrastructure
• On the Board of companies such as
MongoDB, Digital Lumens, nasuni and
FirstBest Systems
Involved with four M&A transactions in 2014
Contact information
• Blog: http://www.hazardlights.net
• http://www.linkedin.com/in/chiphazard
• Email: chip@flybridge.com
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