Chapter 26First Meetings Are Typically Smoke Tests
Congratulations, you got a first meeting with a potential acquirer. Hopefully this will be the first of a series of meetings that eventually result in an M&A offer. As you progress through the process, you will realize that every subsequent meeting carries a higher significance than the previous one. This will be the most important meeting you can have with the target company, until the next one.
You and your cofounders should attend the first meeting. And sitting across on the other side of the table could be anybody ranging from the company’s CEO, key executives, down to just the Corp Dev. Install the correct video conferencing software ahead of time and make sure the right permissions are given to the software. You’d be surprised how many companies do not use Zoom and you have to spend the first few minutes installing WebEx and figure out how it works. Ask for an agenda if it’s an inbound inquiry. If it’s an outbound inquiry, provide an agenda and be sure to cover topics like overview of your company vision, products, differentiating tech, unique value prop, and joint opportunity.
There will be a lot of information exchange in the first meeting. If the buyer reached out to you, expect them to spend time to pitch the opportunity and talk about in detail how you fit into that thesis. Quick to listen and slow to speak, ask clarifying questions that show you are engaged and excited about the opportunity, but also show that you have unique insights on the potential challenges and tailwinds in the prospective plan.
You will be expected to talk about your company irrespective of whether it's inbound or outbound. Depending on where the audience asks questions, spend more time dwelling on those topics rather than trying to cover everything in a short time.
Quality trumps quantity in these high level interactions. Through the interactions, demonstrate that you are thoughtful, articulate, and strategic. That you are the domain expert in the space you are operating, and no one comes close.
Here are some questions that will always be asked at the initial meeting, make sure you prepare for them, or refer to the sample answers I provided. Some bankers like to keep the answers ambiguous when it comes to talking about the purpose of these meetings and refrain from mentioning words like M&As or acquisitions and instead mask them with words like partnerships or strategic alignment. I disagree with this approach, as it should be crystal clear why these meetings are happening in the first place and it's better to just jump right into the endgame. This saves time on both sides and allows both parties to talk frankly. The worst case scenario is to say you are looking for a partnership when it gets interpreted literally as a partnership where you end up spinning the wheels and not exactly get to the outcome that you actually want.
Q: What exactly are you looking for? Why are we having this meeting?
A: We believe that there will be consolidation in this space and we are uniquely positioned with an opportunity to team up and create a new platform or market that best serves our existing and future customers.
Q: Do you have a timeline for the M&A?
A: (Answer truthfully truthfully here, if you have an exploding offer, let them know, otherwise, answer the following) We do not. We are looking to find the best fit and would love to have deeper conversations with the responsible teams to see if we can develop a thesis together.
Q: What is your expectation for the M&A?
A: (Do not provide a number, that's for later after diligence is done) We do not have a number in mind if that's what you are asking. Again, we have a fiduciary to the company to discover the best possible opportunity. And we can certainly have this conversation once we align on the strategies and also this is something that I will need input from the board.
Q: Who else are you talking to at the moment?
A: Sorry, I wouldn't be able to disclose this information just as this conversation is only between us.
Q: Tell me about your team?
A: (You have to emphasize on the domain expertise here) We have a team that is uniquely qualified in their respective domains and are considered experts in their respective fields.
Q: Tell me about your proprietary algorithm/tech.
A: Here is a high level overview on what it is. If you would like to dig deeper, we are happy to do so during the due diligence phase under a mutual NDA.
It’s unlikely that the first meeting will get into the weeds about any particular trade secret or IP, but buyers do have more leverage during M&As especially if you are pitching the sale, and in such a case, you would need to provide some high-level view on what it is. Nevertheless, it is totally okay to play the NDA card if they press on specifics.
Now as the meeting is wrapping up to a close, take the opportunity to ask questions on their strategic initiatives, or views on a potential M&A. For interactions with large companies, expect cagey responses that could be seen as non-answers. This is completely fine, as long as they got the message that you and your cofounders are smart, capable and hardworking, and your company is a potential fit, that’s all it matters. Your job is done for the first meeting. There may be a set of action items for you from the first meeting. Make sure to summarize them at the end. They could be answering a particular clarifying question on metrics, providing supporting documents, reviewing a mutual NDA, or scheduling a subsequent meeting. It’s always better to end the first meeting with action items than not, it shows that the other party is interested. There are times when the other party ends with saying that they like to huddle internally first before providing future action items. In this case, politely respond by saying that you will circle back in a couple weeks if you do not hear back from them and check in.
Likely this will be the only meeting you would ever have with this particular target company. You may think you crushed the meeting, and walk away with a lot of confidence. Nevertheless, M&As are a long shot business, even if you do everything right, the buyer holds all the cards, and sometimes they just do not want to do an acquisition. This is the classic case of it’s not you, it’s me. So treat it as a process, give your best shot, and pat yourself on the back after each meeting. Have low expectations, and you’ll be set up for success.
Now there are rare instances when a potential acquirer comes in hot and the first meeting stretches from an half hour intro to a full-on three hour meeting, and at the end the they are discussing about putting an offer together. Do not let this get over your head, any M&A offer is typically exclusive and non-binding and jumping into one this early would put you in a world of disadvantage. This means you cannot talk to any other buyers and you also give them the right to walk away from the deal at any time. Let them know that you are eager to continue the conversation, but politely let them know that you do need to work with the board on anything related to the terms, and it’s best to align on the terms when both strategic alignment is in place as well as majority of the due diligence is complete.