Top 10 Learnings On What Getting Acquired is Really Like From Ex-Head of M&A at Own, Rackspace, NetApp and Yahoo!

"BigCos have a list. Of folks they might want to acquire. And you have to be on it."

So few having been doing M&A and acquiring start-ups for longer than Steve Mitzenmacher. He’s been heading M&A since early days at Yahoo!, the NetApp, then Rackspace, and then mostly recently at Own Backup. And then Own was acquired itself … for $1.9 Billion!

So Steve went from acquirer .. to the acquired 😉

He joined SaaStr Workshop Wednesday with me and I took the opportunity to ask some of the questions about M&A I still have after many deals myself:

#1. In His 20+ Years Acquiring Startups, He’s Never Called Up a Founder to Acquire Them “Out of The Blue”. Never.

I’ve wondered, how often does a BigCo watch a start-up from afar, and call up to buy them without knowing the founders at all? Not even a bit?

Never was Steve’s answer. So build those relationships now.

#2. If You Say “No”, There’s Less Than a 10% Chance They Come Back

Another question I’ve always wondered. If you say No to a good deal, how often do they come back later? It definitely happens. I’ve seen it. But Steve says it’s less than 10% of the time. BigCos move on. To buy a competitor, or just often … to another priority.

So if you say No — mean it.

#3. You Can Push Back On Price Once or Twice — But That’s About It

The first offer is rarely the top offer. Steve agreed :). So you can counter. But “5 backs and forths” is about the max, Steve says. That’s consistent with my experience. You can counter once, no problem. Twice, with a reason. But after that, folks get frustrated.

#4. They’re Always Looking At Choices #2 and #3, Too

If you say No to a BigCo that wants to buy you, will they really buy a smaller or “worst” competitor? Maybe, maybe not. But my learning is they are always at least looking at a second and third choice.

#5. There’s Always a “List” of Folks BigCos Want to Buy. You Need To Be On It.

In my experience as a VP in a Big Tech Co, there was an M&A list in each business unit. Of the 5 or so top folks they might want to buy. Some were obvious to me, but others were a bit of a headscratcher. What I learned is you had to be on the list.

I asked Steve if the BigCo’s he worked with also had a similar list. “100%, every time” he said. You have to be on it. So again, build those relationships now. Because for every start-up a BigCo buys, there are another 10-100 that honestly would be just as good an idea to buy.

#6. Yes, You Can Reach Out If You Are Running Out of Money. The Price Won’t Be Great, But Just Do It.

I’ve wondered these days if it’s really worth it. If you’re running out of cash, is it really worth it to try to sell your company, especially if the returns will be modest? Steve said Absolutely. The price may be low, the terms may be rough. But there’s no stigma or shame. BigCos mobilize to buy an asset they want anyway if it’s “on the cheap” due to running out of money. Reach out to folks you know, Steve said. And just be honest about timing.

#7. You Have to Take Care Of Your Team. They Won’t Know Who To Take Care Of.

In almost every acquisition, I’ve seen a few key team members not get taken care of. I’ve screwed this up too a few times, and I really regret it. I tell founders now to work on this before you sign any term sheet. Steve concurs. He says in fact, it’s appreciated. Tell them who the key folks are. Especially the non-obvious ones. They’ll know your CTO is critical. But they may miss a lot of other top performers.

#8. Being Organized Can Be Hard But It Really Helps.

Everyone says this in M&A, and I know as founders you can only do so much. But if you do get acquired, get ahead of being organized. Have your financials in order. Build your own data room. Get as much detail as possible, together, organized. It saves a lot of pain later.

#9. Yes, The Last Round VC Price Really Is an Anchor for Pricing

I asked Steve, if a start-up is hot, is the last VC round pricing really an anchor, a floor for pricing? Yes, he agreed, for a hot deal. If it was an overpriced VC round in 2021, they may ignore it. But if you’re doing well, and the last round was at say $100m, corp dev knows they have to pay more for the VCs to agree.

I’ve seen a few deals recently where a BigCo just tried to ignore the last round price, but Steve says that’s pretty uncommon if a start-up is doing well.

#10. It’s All a Process. Don’t Let It Frustrate You.

M&A is a complicated process. When EchoSign was acquired by Adobe, more folks worked on the deal … than the total number of employees we had! 100+!! A good reminder from Steve that you sort of have to accept it will be an overly complex, somewhat painful process. Accept it.

And 10+ more learnings with Steve here (he has his own Top 10 list):