The Founder's Guide to Mergers and Acquisitions - 7/30

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📰 Today's Edition: The Founder's Guide to Mergers and Acquisitions

The M&A process is a black box for most founders.

How does your company get acquired? And how do you get acquired for real money?

Think of it like VC fundraising, but harder.

Why Companies Get Acquired

Acquirers are buying one or more of four things: your team, your product, your customers, or your strategic fit.

Team acquisitions (acqui-hires) happen when your talent is rare enough that a company would rather buy you than hire you.

In the AI era, that can run into the billions.

Product acquisitions happen when your product fits neatly into an acquirer's suite and it's faster to buy than build.

Customer acquisitions are about your revenue. If you have $5M ARR, that's a floor, not a ceiling.

Strategic fit is about where the acquirer wants to go next. If your company is already headed there, you become a shortcut.

The stronger you are across all four dimensions, the higher your price.

How Deals Get Structured

Full buyouts happen, but they're not the norm.

More often, acquirers cherry-pick what they want: your team, your product, your customer list, or some combination.

They're not eager to inherit your debt, your lawsuits, or your messy cap table.

This means you can sometimes sell different pieces of your company to different buyers.

We see this in AI right now: one company takes the team, another takes the product and customers.

If your team is part of the deal, expect golden handcuffs: typically two to four years of vesting at the acquirer.

And be warned about earn-outs based on post-acquisition milestones. In practice, full earn-outs almost never materialize.

Navigating the Negotiation

Your job is to keep the process short and simple.

Before lawyers get involved, hash out the key terms directly with the acquirer in plain language.

Know what you're selling, what you're willing to do post-acquisition, and roughly whether you're in the same ballpark on price.

Compensation comes in cash, stock, or some mix.

Cash is straightforward. Stock is trickier.

Post-2021, plenty of founders took stock deals from overvalued companies and ended up with a lot less than they expected. If you're taking stock, do your homework on the acquirer the same way a VC would.

One more thing: keep your team out of it until the very end.

The moment people think they might be rich or out of a job, productivity tanks. If the deal falls through, you're left trying to get everyone refocused. Not a fun place to be.

Wrapping Up

Mergers and acquisitions are real exit paths.

Whether you're doing a small acqui-hire or negotiating a full buyout, understanding what acquirers are actually buying puts you in a much stronger position.

Simplicity and speed are your friends. Get the big stuff agreed on early, then bring in the lawyers.

Until next time,

Dunky, the ''Acquisition” hippocorn

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