26 June 2017
I’m writing this article now because the timing should leave no room for confusion: To my knowledge, Stonemaier Games is currently not being pursued for acquisition.
However, there was a time in the past year that a company expressed interest in buying my company. It wasn’t something I was seeking or interested in, but I dipped my toes in the waters of that process to learn what I could from it. I was curious.
While the potential for an acquisition is much higher for you after you’ve successfully crowdfunded a project–a position some readers may not be in yet–it’s also possible that a company could approach you before or during a campaign. They might be looking to acquire your company or to just buy out the rights for one specific product. Either way, you might find some helpful information below.
Before I get into the core considerations, I thought I’d describe the process I encountered. This may be vastly different than other acquisition attempts.
I first heard from an intermediary, not the actual buyer. They asked if I would be willing to chat with the buyer. I looked into the company and talked to my team about it, and we decided it couldn’t hurt to chat.
I had a conference call with the company. They spent most of the call talking about the value they could add to Stonemaier, and they talked a little about what the acquisition would look like. I had sent them some questions in advance, and they answered those questions. It’s notable that they wanted me to continue to run Stonemaier Games, which was good to hear–I love what I do.
I was open to continuing the discussion, but before our next call, I did a few things: One, I talked to the founders of another company that the buyer had previously acquired. Two, I talked to a few other game company owners about acquisitions. Three, I put together a detailed financial document about Stonemaier Games. Even though I was 99% sure the acquisition wouldn’t happen, all of these things were helpful for me as an entrepreneur.
I then had a follow-up call with the buyer so they could better understand the financial document. At that point I had made it clear that I had a baseline price for negotiations to continue. Soon after the call I heard from the intermediary that the buyer couldn’t match that price.
The following is a list of questions for the buyer, other companies previously acquired by the buyer, and for yourself.
Questions for the Buyer
- Are they looking to retain you as an employee or simply buy out your intellectual property?
- What range of multipliers are they considering on EBITDA (earnings before interest, tax, depreciation and amortization) for the valuation?
- What are some non-financial assets they offer to enhance your company? If they approached you, remember that they’re selling to you, not the other way around. Get a feel for if their strengths match your weaknesses (or the things you simply don’t like to do).
- Do they require exclusive negotiations, or are they open to you entertaining other offers? It’s good to put yourself in the position of having multiple offers if possible (watch Shark Tank to see what I’m talking about).
- What are their core philosophies? If you have certain philosophies that are important to you, now is the time to see if they align. For example, are they interested in squeezing every cent from a product, even if that involves lower-quality components or overinflated prices? Is using Kickstarter important to them? Do they care about where you manufacturer the product? How will they respect the brand you’ve built for your stakeholders?
- What do they want to know about you?
- Do they want to invest in your company or buy the entire company?
- Could you visit the company and meet the people you’ll be working with?
- Have they acquired other companies? If so, do they mind if you speak with those companies?
Questions for Previously Acquired Companies
- How much autonomy did you retain?
- What were your concerns pre-acquisition and how did they turn out?
- How was the transition process?
- Were you able to keep your office in the current location? If so, how often do you travel to the parent company?
- How often do you have to check in with the parent company? Do you mind it?
- How has the parent company made your brand more successful?
- Do they have any regrets?
Questions for Yourself
- Are you happy with the way things are? Just because a company is interested in buying you–even at a fair price–doesn’t mean it’s a good fit for you. But it’s also a good opportunity to take a step back and consider if you enjoy running a company or if you’d rather just do one specific thing and let a team of other people handle everything else.
- Will the deal let me do more of what brings me joy with no regrets? (thanks to Luke in the comments for this question)
- How much of a say do you have in the decision? I own 90% of Stonemaier Games, so while I include the other owners in important decisions, the final decision is mine to make. You might be in a very different position based on your ownership level. Another way to look at this (suggested by Luke) is “Do I owe it to my investors to take this deal?”
- Do you mind answering to someone else?
- How secure do you feel about your future? If you receive an offer today, there is a certainty in it that can’t be matched by an unknown future if you don’t take the deal. There’s value in certainty. The future is both exciting and risky.
- How much control do you want?
- Does this deal protect the products and people I care about? (credit again to Luke)
- How much is your company worth? This is a tough one to answer because your company is worth what someone else is willing to pay for it. There is no standard valuation formula that applies to every industry. However, this may be a reason to enter the fray of the acquisition process, as you could walk away from it with a much clearer view of how other companies perceive the value of you and your IP.
- What’s the minimum offer you would consider? For me, this is the big question if you aren’t actively seeking to sell your company. It’s okay if it’s high. You’re in the driver’s seat. I think it’s worth figuring out this price early on in negotiations so you don’t waste their time and they don’t waste yours.
- Do you want to continue to run your company, or are you ready to focus on something else?
- How will your existing fans perceive the acquisition? I’ve had a few people tell me, “I sure hope you don’t sell out to Company X.” I’m always intrigued to hear that, and I’ve tried to dig deeper when possible to better understand what they’re saying. At the very least, it’s a good reminder to me that the way people perceive your company can change based on if you’re acquired and who acquires you.
Have you ever been approached about an acquisition? What are some additional questions you think are worth asking? And when a company is acquired in an industry you follow, how does your perception of them change?