What happens when your company gets acquired?
For many entrepreneurs, getting acquired is the exit strategy from day one. For others, it just kind’ve happens as circumstances unfold. But few folks have any real idea of what’s really going to happen, and what actually happens can vary wildly.
To give current and future entrepreneurs a more informed take on things, on February 4th Communitech hosted a breakfast event called Life After Acquisition. This event brought to the stage three local entrepreneurs to share their stories from the perspective of being acquired:
- Joseph Fung, VP of Human Capital Management at NetSuite, formerly Founder of TribeHR
- Kerry Mueller, now retired, formerly Founder of One-Eighty Corp
- Mate Prgin, President and CEO of Avvasi, formerly Founder of VideoLocus and an engineer at PixStream
The panel was moderated by Steve Woods, Engineering Director at Google Canada and known around town (I’m told) as “The Google Guy”.
During the 90 or so minutes, the panelists (and, it should be noted, the moderator) shared stories that were at the same time enormously different and strikingly consistent.
Below, I’ve summarized their comments, lessons, take-aways etc. by panelist.
While Steve wasn’t a panelist, he was still able to add his own perspectives either to frame a question or to follow-up to what the panelists had said. Steve’s experiences with acquisitions are many: his software company was acquired only one year into its existence, and at Google he’s been involved with a long list of acquisitions.
I get the impression that his own mixed (or somewhat negative) experience in being acquired makes him quite a thoughtful and considerate acquirer.
Steve took the panel through a number of questions, from their motivation to be acquired, to the biggest surprises, dealing with being part of a new company, etc – we really covered a lot in a relatively short amount of time.
Joseph and I were classmates for a brief period at UW, and he’s a well-respected member of the local community, so I was very much looking forward to hearing what he had to say.
Joseph joined Netsuite when the company acquired TribeHR, which was Joseph’s fourth start-up. His first three had been bootstrapped, and TribeHR was the first one for which he sought outside funding. As Joseph said, he didn’t want to have payroll on his credit card. Makes sense.
TribeHR received a lot of attention seemingly right from the beginning. When they started seeking potential partners to access larger markets, NetSuite was one company that showed attention. Ultimately, a partnership was formed, and it later turned into a full acquisition.
Joseph described this as being a savvy move on the part of NetSuite, as they got to really feel out not only the TribeHR products, but also the team as a whole, before deciding to bring them into the NetSuite fold.
Things have worked out very well since then. TribeHR had 15 local people at the time of acquisition, and now that number has reached 40. Joseph, too, seems to enjoy his role as a VP reporting into the CTO, and it’s clear that he has tremendous respect for, and a great relationship with, his boss.
Steve kept trying to get Joseph to say something, anything, negative, about the whole process, but Joseph just kind’ve chuckled and said that his experiences were very positive. While “friction is going to happen”, so long as there is cultural alignment then things will work out.
I especially liked Joseph’s take on how to determine if there actually would be a fit:
- Ask yourself, “Am I going to like who I’m reporting to?”
- He met with other founders, both locally and in Silicon Valley, who’d been acquired, and asked for their horror stories and surprises; this knowledge armed him with a list of questions and heightened his senses to possible warning signs (which ultimately never appeared)
- Here’s another interesting perspective: as part of being acquired, you often gain equity in the acquirer, so “You have to ask yourself, ‘is this a company that I’d want to own?'” Asking this question led Joseph to do extensive research on the entire NetSuite leadership team and board.
“You have to ask yourself, ‘is this a company that I’d want to own?'” – Joseph Fung, on doing your research on a potential acquirer
Part of the reason that the acquisition of TribeHR went so smoothly was that as a company they had held themselves to a very high standard of operation since the very beginning: all employee agreements were signed, they tracked invoices, etc. When it came time for NetSuite to perform due diligence, review legal contracts, etc., that all went smoothly. NetSuite later described the whole process as being the smoothest acquisition they’d ever done. Kudos to Joseph and his team for making that possible.
When asked what his top three considerations were during the acquisition process, Joseph listed:
- Employees: Is this right for everyone? What will the future hold for people? Will there be a fair return?
- Customers: Is this right for TribeHR’s customer base? What will happen to the product going forward?
- $$$: Is this a fair amount?
Joseph’s final piece of advice for aspiring entrepreneurs was to “take care of yourself”. Being an entrepreneur is stressful, so you need to be healthy (eat right, exercise, get sleep) and need to have a strong support network (friends, family, spouse) in order to withstand the rigours.
Over thirteen years, Kerry and her husband grew their company, One-Eighty Corp (which built software for car dealerships), to sixty people and significant market share in Canada.
At just about the time that they were wondering how to expand south of the border, and to the rest of the world, they were approached by ADP (now CDK Global), who were hoping to acquire One-Eighty Corp. Kerry saw this as a compliment, and was happy to engage in discussions.
From that point on, the founders’ focused on securing a fair agreement, and one that included a commitment to grow the product and that would look after the staff.
Similar to Joseph, Kerry’s experiences seemed entirely positive. That’s not to say there wasn’t stress or anything, but just that the whole experience was smooth, fair, and there’ve been no nasty surprises.
Her top three considerations when examining the acquisition offer were:
- Fit: culturally
- Future: of the product, of the staff
- Stature in Industry: would the acquirer have the stature to take the product global?
For me, the most poignant piece of advice from Kerry was a reminder that during an acquisition process, those involved (e.g., founders, lawyers, executives) are living and breathing the whole procedure, while others in the company probably don’t even know anything is happening. As Kerry reminded us, “They’re going to get one heck of a surprise one morning when they hear the news.” So you have to be sensitive to that, and make sure you understand what the questions and concerns will be, and provide support during the transition.
“(your employees are) going to get one heck of a surprise one morning when they hear the news.” – Kerry Mueller, on being sensitive to the major shock that can come with an acquisition announcement
I’ve met Mate on a number of occasions over the years, as there’s a great deal of overlap between our various professional circles as a consequence of Sandvine and VideoLocus both emerging from the ashes of PixStream.
After PixStream closed, Mate and three colleagues got together to co-found VideoLocus, a company that developed video streaming technology for what would become the H.264 codec.
VideoLocus reached a point at which they needed strategic capital, and ultimately that quest turned into being acquired.
Mate’s experiences weren’t quite as warm and fuzzy or entirely positive as the other panelists, though. For instance, while the other products continued, in Mate’s case the VideoLocus group instead had to shift gears and focus on updating the acquirer’s legacy products. This effort took about twice as long as it would’ve taken to just complete the product they were working building. In the meantime, the executive who championed the acquisition left the acquirer and started a company that built what Mate and crew had been planning on building before getting side-tracked updating a legacy product. So not a completely great experience.
Mate’s advice for anyone looking to be acquired is that you really have to know what you’re doing. Employee equity, venture capitalists, angel investors, etc. – you need to have a plan, and all of these folks have related but different needs. To help keep things balanced, the VideoLocus board had diverse representation and an independent chair.
Two other tidbits from Mate:
- Pursue in parallel the acquirer who will be the best fit for the company, and the acquirer who is most willing to overpay. There are scenarios that favour one over the other, and it doesn’t hurt to have more than one option.
- Get bought; don’t sell.
While I was feverishly jotting down notes, I became aware of consistent themes that popped up naturally (rather than being brought up explicitly by Steve):
- Financing: you want to control your own destiny as much as possible, so having a plan and reviewing it regularly is important. For instance, you don’t want to wake up one morning and realize that you’re running out of money and now have to act out of desperation. Know your runway, know your product timelines, and know whether you want a partner, a strategic investor, or an aquirer.
- It was clear that for every panelist (and Steve) the number one concern was for their team: what will happen to the current team? will there be a cultural fit?
- There were many examples relating to giving up control. For a founder, they’ve been in charge since day one, but upon acquisition the decision-making can change substantially. Do you know how the new decision hierarchy works? Will you have final call, or will someone else? Knowing this clearly ahead of time, and doing what you can to get it into written agreements, is vitally important to determining how much you’ll like your new environment.
- Entrepreneurship is an exciting, but tough gig. Early on, Steve had mentioned how, upon being acquired, his team had 16 weeks to bring the product to completion. They succeeded, but it burnt out everyone. Near the middle of the session, Mate said that, “There are days when I wonder, ‘Why am I doing this?’ and there are days when I know that, ‘There’s nothing I’d rather be doing!'” Near the end, Joseph echoed these remarks with his reminder to look after yourself.
I should mention, as well, that you can see Communitech’s write-up of the event here.
Thanks as always to Communitech and to the participants for a thoughtful and insightful session!
“There are days when I wonder, ‘Why am I doing this?’ and there are days when I know that, ‘There’s nothing I’d rather be doing!'” – Mate Prgin, on entrpreneurship