About CEO Confidential

An invite-only series hosted by Mallun Yen for OpCo founders along with experts in our Operator LP community on key operating issues critical to success. These candid, interactive conversations surface best practices, how to avoid potential pitfalls, and compelling “how we did that” stories from the trenches that range from strategies to tactics.

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Key Takeaways

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How and when should you think about M&A as a strategic alternative?

• M&A is always one of a few options for any business, along with going public, opting for a lifestyle business (i.e. when the owner makes money but not shareholders), or ending operations.
• Your main focus should be about running your business optimally while focusing on growth and execution. If you do this, then you will optimally set yourself up for maximizing value which could result from M&A.

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What steps can you take today to position your company for successful M&A even if you’re not looking to sell (or buy) today?

• You should know every company in your ecosystem, even if tangential. Know those bigger, key strategics. Know those smaller, could be competitors. 
• Build relationships. Compare notes on what you see in the market and have a cadence to check-in. Participate in industry events, show up in analyst reports, be seen as a leader in your domain. Prioritize conversations with executives, product teams and corporate development teams of your competitors and peers. M&A deals that get done down the road will primarily be done through relationships you’ve made somewhere along the way. 
• Don’t be afraid to get intros or take the inbounds and become a thought leader in your domain now. M&A is often led by product teams and you need executive vision and corporate development engagement to get a deal done. Prioritize relationships accordingly.

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Key things to remember:

• Inbounds often come from a place of wanting to learn. A company decides they want to invest in XYZ space and they don’t know it, so they decide to find people who do. They will reach out to you if they think you may have what they want to learn. It can lead to a partnership which eventually could lead to M&A, straight to M&A, or discovery that this really isn’t an area of interest afterall. 

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From a potential acquirer point of view, the meeting intent isn’t necessarily how do we copy this product, it can be more of a discovery of do we want to get into this space? Is there a way for us to find out if we could partner together?

• Stay in the position of control. Take the cold inbound call but approach it more as a learning exercise.  “We’re not for sale, but we’d love to discuss your strategy on XYZ or how you’re thinking about ABC?” Be prepared to have conversations develop over time. And use the inbounds as you would with any intro. ‍
• Think of M&A as essentially “the biggest enterprise deal you’ll ever do.” It is a courtship and it takes time. Open lines of communication are important while knowing there are not 100% protections for you when it comes to a signed NDA. Can you have lunch, and share more generally about the company but not do  a full-blown demo? Always remember, the focus is on relationship building. How can you create more value together?
• ‍Continue operating as if a sale is not going to happen, that way you continue to focus on the most critical parts of your business, without being tied to an outcome. Stay open and curious, keep emotions out. Pay attention to culture, strengths and weaknesses, and alignment as you build relationships and explore ways to work together be it through partnerships, strategic investment, or acquisition. 

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If you’re seriously considering an M&A transaction, what additional investments can you take to make your company more attractive?  

• Continue focusing on execution. You want to stay in a position of strength to maximize value. Growth should continue without margin erosion. Does anything need repositioning or retargeting?
• Think about PR. It’s helpful to create a hype cycle, strive to get novel pieces published in outlets you haven’t been in before.
• Consider hiring a banker. Bankers have all the upside and their incentives are aligned with yours. Their value is they take away a lot of distraction and manage the due diligence for you. Determine which bankers cover which stages. Currently, bankers are getting more excited to do mid-market deals because the environment has been quiet. 
  
  If M&A is the primary path, then the banker path could be interesting, but be cognizant that hiring a banker can send the signal “I’m for sale!” and there’s a stigma attached to it, especially if you have no other offer in hand. Note they can have strong access to private equity. There are more strategic PE firms now with cash and rollups could be coming.

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You feel it’s a good time to sell, but you haven’t had inbound interest. What to do?

• Know potential targets and buyers at all times. You should always be building relationships in your ecosystem. It’s important to know which folks you don’t know. Start looking for intros from your investors, partners and network. Going in blind isn’t terribly efficient.
• Presentations should lead with your mission and product offering. Know who you are meeting with, read press releases, earnings transcripts if the company is public, set up talking points to hear their vision and ask questions. You want to clearly articulate your business, while also learning about them. And more importantly they need to get excited about you. The buyer is in the position of power and must believe they’ll be better with you. 
• Don’t forget to talk about fundamentals, but do not lead with it. This is not a standalone company presentation you’d use for funding. Though you do want to show that you’ve managed your business well.

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What should I do if I’ve hit a bump in the road?

• Stay focused. Accelerating revenue growth while managing burn is the primary goal. Don’t get distracted by multiple products and multiple personas, focus on what is working and optimize that.  ‍
• Get frugal, focus on the bottom line. Scrutinize all costs. There can be a lot of waste at many companies. Consider zero-based budgeting every six months (i.e. start with zero and then build the budget back up justifying every expense and headcount). ‍
• Incentivize the right metrics. How do you create a culture of financial discipline while not hindering growth? Incentivize the right metrics: focus on ARR and cash flow goals to align the whole company. 

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Do you have any advice for deal making part?

The LOI is the foundation for the entire transaction. This is the stage where most deals go awry and punting does not help you. This document is a term sheet and goes beyond price. It sets the foundation for the deal terms. You want a great outcome for everyone, so give a great deal of thought to:

• Timeframes
• Consideration (i.e. cash, stock and tax implications)
• Exclusivity windows
• Employee retention and future incentives
• Leadership (titles, etc.)
• Non-competes post-deal

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About Our Experts

Dana Marohn Spiliotis, former SVP of Strategic Finance and Corporate Development at ZoomInfo (NASDAQ: ZI), led seven acquisitions in 18 months at ZoomInfo (and many more as a Morgan Stanley investment banker). Before returning to operating full-time, she advises companies on M&A and associated positioning, financial and strategic planning, budgeting, capital raising, and overall strategy. 

‍Andy Wilson is a seasoned entrepreneur and technology executive. In 2023, Andy successfully sold Logikcull, a leading eDiscovery platform, to PE-backed Reveal Data in a 9-figure, all-cash deal. Under his leadership as the co-founder and CEO for 19 years, the company evolved from a bootstrapped, high-end litigation services firm into a disruptive SaaS platform that changed the game in legal tech.

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About Operator Collective

Operator Collective is an early stage venture fund investing in enterprise, b2b, data and infrastructure. We bring together a close knit community of over 200 Operator LPs from diverse backgrounds who have built, scaled, and founded iconic companies to accelerate the next generation of founders. 

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