Chapter 21Engage Inbound, Lean In and Learn

This is the most exciting part of the M&A. To be desired and coveted, to be showered with praises on how phenomenal you and your cofounders have trailblazed a new path, how the acquiring company loves the strategy of combining together to become a multiplicative force, how this is a marriage made in heaven… Take a deep breath, none of this is real, and not all inbound inquiries are created equal. For all you know, the inbound could be just the spur of the moment from an impulsive executive who would forget about this whole idea of buying your company in a couple days and off to chase her next phantom big idea. Or, the inbound could just be from a lowly analyst or junior Corp Dev who is doing market research and wants to get some first hand knowledge from you as the founder. In any case, stay even keeled and put your best foot forward to lean in and learn. As you engage with these inbound inquiries, the goals are to:

1. Figure out if you are talking to the key decision maker for a potential M&A? If not, figure out who is the decision maker.

2. Once you are engaging with the decision maker, determine if she is interested in collaborations, partnerships or an acquisition.

3. It is fine to engage with a partnership initially, and in fact oftentimes it is necessary before these relationships are borne into an M&A, but make expectations clear to the other party that your goal is an acquisition.

4. I do not recommend aligning on a price this early in the process, as pushing for a price tag without enough discovery could lead to the potential buyer misinterpreting you being primarily pursuing this acquisition for financial gains, or in the other extreme getting into a non-binding exclusive term-sheet period where the buyer has all the leverage and you are prohibited from talking to any other potential suitors.

Let's walk through a real example. We received the following cold email from a tech giant in late 2021,

To an untrained pair of eyes, this may just appear to be another one of those cold introductory emails that quickly gets discarded into the trash can, as it is a cold email from an unknown sender completely out of the blue. But, a couple signals to pay attention to, firstly, it did not come from a Corp Dev, it was coming from a Research Manager who has a technical background and his Director was also copied. This also indicates that this likely will be an acquihire scenario as engineering leadership reach outs typically mean they are short on staff and are looking to quickly onboard additional manpower. Product or senior executive level inbound inquiries are more likely to be strategic. Secondly, his role within the organization has a clear parallel with the SDKs and services that our company sells, and he has done his research on our product offerings. Lastly, the giveaway here is the word collaborative opportunities. Very rarely on the buy side especially coming from big tech companies do they explicitly mention acquisition in the email, especially coming from a non-Corp Dev role. It is a way to save face in case the founders turn it down right off the bat, where nothing can be learned without even a conversation. In any case, the objective is clear that they are looking at companies in this space and are looking to shore up their bench.

To reply to such emails, keep the message short and also make sure you do some market research on their product offerings and offer ample availability so that a meeting can be scheduled quickly. We replied with the following:

Things will tend to move fairly quickly at this point. Depending on how well the potential acquirer knows about your company, they may email back quickly to ask for a short presentation in advance on your background, team, mission and vision, product roadmap, technical capabilities, and long term goals. You can make modifications to the slides you made from Chapter 15 and customize it to the other party and their products or technology. Set a date that is ideally one week out so that it’s not too far away that they completely forget about this opportunity, or too soon that it sends out the wrong signal that you are desperate to sell. For the same reason, I do not recommend sending over overly-polished M&A themed slide decks prior to the first meeting, as it sends the wrong signals. If they do ask for some pre-reading materials, it is totally fine to put everything in a Google Doc that only includes the things they asked for.

Now chances are you may not get all of these inbounds at once, but it’s good to try to line everything up when you are ready to engage in the M&A market so that all of these conversations happen simultaneously. If you have had relationships with companies that previously reachout about M&A or are completely outbound targets, this is the perfect time to reach back out and ask for meetings (we will talk about it in Chapter 23). Now they don’t all have to happen at the same time, but it would be good to align these conversations so that when the offering phase is reached, all of the due diligence is already complete and you are not waiting for stragglers for them to reveal what a potential offer looks like. Now let’s take a look at what the inside looks like when an inbound company reaches out regarding possible M&A.