From an on demand delivery founder who did almost a million successful deliveries and rejected a buyout/investment of 50% from a massive airlines company and a few other MNC’s.
Here are some learning experiences shared on what needs to be expected and how to go about doing the deal. The founders learned methods on how to approach and set high valuations by having a strong mentor in the US.
- Before meeting the buying company, visualise yourself having the chat with the their team to find out what to say and what not to say during the meeting. As below, these are things to note off before you go for your big meeting.
To Note:
A. Their main intention is to get as much information as possible from you during this stage. This is to leverage for later on and find your weak-points and strengths.
B. If they are in a similar industry, this meeting could only be a learning process for them to find out your secrets and methods on running the company. Thus they don’t need to go through the challenges and avoid it.
C. You as the Founder must be very chilled and laid back. They called you here, so you need to act like you are the boss and you have the knowledge which they seek.
D. Avoid answering questions which you are not comfortable with. Be upfront about it. There is no harm in saying I cant answer this now. Remember, every single thing you say, there’s a $100,000 being reduced from your valuation. - You Must NOT share any critical information with them at all during this stage. This is where you need to avoid questions by diverting the topic or distracting them.
3. You must get your NDA Signed, and make sure in your NDA you have clauses which states that both parties are not allowed to poach each others employees and that after the discussion is over all the information must be destroyed immediately.
4. All of the documentations, the agreements etc do not do it yourself as the founder. You MUST get a professional to do it. You have no experience in this and will get screwed by the professionals from the buying side. Imagine having 10 lawyers all talk to you in a round table discussion on your numbers, they will squeeze you until you have hardly anything left to sell.
Many have faced this. A supermarket in Malaysia, sold off his chains but did it himself . He got hammered left right and centre on the numbers and eventually sold it off for dirt cheap which he now regrets.
Thus You Must get 2 professionals to help you before you move further down the deal.
A. Get a Investment Banker to broker the deal for you. They will either take a fee from success or a pre agreed fee based on the complexity of your business. These guys are seasoned and know exactly what to say and what not to.
B. Get a corporate lawyer who understands and has done prior Merger & Acquisitions agreements. They will be the ones to make sure no funny clauses are there which tie you down in the wrong ways.
There are many young founders out there who don’t bother checking the terms thoroughly when they receive a large amount of money. They just care about the amount and agree to everything. This is not the way to do it as you are only diminishing your future. You might not realise it now, but in future the clauses will come haunting you.
How do you get a high valuation on this buyout?
Check out this article first : https://asianbusinessmen.com/2020/09/19/how-to-calculate-valuation-in-asia/
Now that you know how to calculate valuations, the next steps are simple :
A. Prepare your cash flow. This should show your expenses, your revenue and your bank balance.
B. Prepare your audited accounts and your management accounts. Audited can be last year, management is better to have the latest up to date accounts. However if you don’t, then its better to keep whatever is ready for the audit.
C. Prepare your terms. They will provide you a term sheet, but you must have your own terms ready first. This is where you add in all your values, your do’s , dont’s and how you want the deal to happen.
D. Lastly, prepare your pitch. You need to still pitch to them, this is where you talk about your business and how you intend to run it. Do not share your secrets at all, just the general stuff.
4. Now when this is all ready, meet them again but this time present your pitch and your valuation upfront. Do not waste time on the valuation, tell them what you expect and let them decide then.
Most of the time, if they actually are interested, then they will start to bargain. Otherwise they wont even bother, and if they don’t bother, you shouldn’t as well as that leads to doom eventually.
Now out of all of this the MOST IMPORTANT thing to remember:
A. These sort of big deals are very time consuming.
In order to go through it smoothly without much damage done, you need to make sure you are mentally ready for it.
If the deal doesn’t happen, there will be lots of mental stress to deal with, many people to deal with and some cash for the bankers and lawyers.
B. During the time of these deals, you wont have much time to focus on your day to day operations.
This is particularly because of excitement and also the amount of work needed to be done to be ready for them.
Make sure to pre-amp your team and get all your other tasks done first before proceeding fully into.
With that, I hope my knowledge can help you spend your time efficiently and not make the same mistakes as I did.
All the best and rock this world!!
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