Mike Stott

Greetings of the day (or, if you’re in the UK, morning). Today I wanted to write a bit about being acquired. Whether you should say “yes” to the dress and what I learned along the way.

Spolier: We did say “YES” to the acquisition dress and almost 3 years on I’m still at Automattic with no intention of leaving anytime soon (well, except for parental leave, as my 2nd child is due in just under 2 weeks time!).

What is an acquisition, acqui-hire, buy out?

There’s a few different terms thrown around. I’ll do my best to explain them but this post isn’t about which is which.

• Acquisition: In our case, Automattic acquired us (the engineers) and the product which has continued to be run as it was prior to acquisition.
• Acqui-hire: You already have a product similar and want to acquire the people and merge in elements of the product to a larger product.
• Buy out: The product is acquired, but none of the team go with it. It’s simply an asset purchase / buy out.

Which one is best?

It depends on your personal circumstances – either of the three are significant markers of your product being valuable to a company. You may have a portfolio of products and cannot keep up with them all – so in this case you might want to put one of them products up for sale (there’s acquisition services out there for that).

Should you say yes?

More often than not it’s a two way process. You’re entering into a relationship if you’re being acquired. You want to both know if you’re right for each other. The only way to do that is due diligence.

Due Diligence – eek.

That’s a scary word. It’s what you do when looking at a house to buy. There’s contracts, lawyers (both sides) when buying a house. I won’t lie, there’s that AND MORE when it comes to further down the acquisition process – so it makes sense to get that initial fit explored first. Here’s some things you might want to ask / research.

• Who are they?
• Who is the founder / CEO? Any scandals?
• What are they like?
• What’s it like to work there?
• Does the Company have a manifesto or creed – do you agree with it?
• Do you expect them to grow / help you grow more than you could alone?

What is the acquiring company like?

You can set yourself up for success by doing research on the Company who is interested in you. What’s the founder like (in our case, Matt is really well known and respected in the WordPress Community).

What’s the Company like to work for with? You can read stories from employees who you know are there (hunt around on LinkedIn) and you can see how prior acquisitions have gone.

There’s also review sites like Glassdoor but take these with a pinch of salt – anyone can submit a review just like any review site.

What are the terms of the acquisition?

You’ll be offered a term sheet / or heads of terms from the acquirer. This will cover the purchase price, how it’ll be structured (cash vs equity) along with any offers of employment.

When considering the purchase price – it’s worth looking at the full package (from purchase, to salary, to benefits) but most importantly for me – it was the people I’d be getting the opportunity to work with.

I won’t be going into actual numbers and offer structure for our acquisition, but generally you’ll see something like:-

• A price multiple of x times your TTM (trailing twelve months) or NTM of the product cashflows.
• A split between cash and equity (could be 100% equity).
• Salary offers if joining the company.
• Contracts of employment.

Is the price right?

There’s a useful website called clouded judgement which goes into revenue multiples for public companies. If you’re not public then you can’t really make a direct comparison.

Multiples can range anywhere from 0.5x to 20x LTM or more – so whether the “price is right” really depends a lot of factors.

• What’s your business growth – are you 40% year on year for the last 10 years?
• What’s your burn? You might make $500k ARR, but spend $495k a year.
• How in demand is your product?

What about other factors?

I won’t lie, being an Entrepreneur has it’s ups and downs. It can be rough mentally to have your entire livelihood depend on how many sales you make each month. It’s also much harder (in the UK) to get mortgages if you’re self-employed or a director of your own company.

You may be at a point where you’re trying to hire and really, really struggling to find the right fit. You might be reaching the limits of your expertise when it comes to marketing your product.

Unless you don’t have these worries, then it’s not only the purchase price you’ll be thinking about. The job security, mental health improvements and surrounding yourself with exceptional people are undeniable factors which play a part.

What’s the process like, Mike?

To summarise what was a 6 month process for us, it went something like this

• Initial reach out by Automattic (we were an Outbound acquisition)
• Explorative chats about the product and Automattic.
• Multiple Product demos for various people across the business.
• Sharing financials about how the product is doing. The challenges. Our plans for the next year.
• [Lots of internal chatter and P2s]
• Expression of interest to acquire.

• Heads of Terms / Term Sheet
• Negotiations of price & offer structure
• Lawyers (our side) to review HoT
• Tax Accountants to review from a tax perspective
• More negotiations.
• Financial due diligence (calls with accountants their side)
• Tax due diligence (calls with tax team their side)
• Product due diligence (calls with experienced engineers)
• Throw in WCEU (Berlin) for some actually really cool face to face chats.

• More finalisations
• Offers of employment
• Expected close date

Phew. It’s one heck of a process. We didn’t entertain any offers from any other potential acquirers but that’s something you may wish to consider when working on the price component of the deal.

Aww but it sounds fun. I want in.

That’s great. One thing I learned through the whole process is you don’t HAVE to be an outbound acquisition. If you have a business that you’re exploring your options about – then it doesn’t hurt to reach out and have a discussion.

You’ll be an inbound acquisition opportunity – and may well be the right fit. There’s only one way to find out.

If you want to learn any more about the process – drop a comment below.