Steps Involved in the Process of Startup Acquisition

Vibhavari Madki Vibhavari Madki
Sep 9, 2021 6 min read
Steps Involved in the Process of Startup Acquisition

Startup Acquisition is a process wherein big companies buy a small company/startup and has gained control over it by purchasing most or all of that company's shares or assets.

There are several reasons why a company would want to acquire/buy a startup. If an entrepreneur is ready to sell off the business and move onto a new idea, the company needs a strategy to go through the entire acquisition process. There is a concrete process that will highlight crucial aspects of acquisition and how an entrepreneur can minimize the chances of failure.

For most of the companies or startups, getting acquired by another firm not only approves that the company is on a growth path in the respective industry but also bridges the financial gap that was trying to fill for quite some time. Acquisitions and mergers are exciting and challenging for entrepreneurs of engaging companies.

The UK business is highly active pertaining to Mergers and Acquisitions (M&A). There were almost 1,400 M&A deals during the first half of 2019 in all the major sectors like telecom, insurance, manufacturing, IT services, and wholesale industry.

Apple's Largest Business Acquisition
Apple's Largest Business Acquisition

Acquisitions come with many complicated steps and require a high degree of skills, expertise, and execution. Sometimes, an acquisition process can go wrong and end in failures. There are some megacorporations like Microsoft and Google, even they got the acquisitions wrong.

Process of Startup Acquisition
Step 1: Initial Motivation and Consideration
Step 2: Sourcing
Step 3: Preparing for Due Diligence
Step 4: Hiring a Legal Counsel
Step 5: Assemble a Finance Team
Step 6: Prepare the Team for Acquisition
Step 7: Seal the Deal
Step 8: Purchase Terms and Conditions
Step 9. Post Purchase Advertisement
Conclusion
FAQs

A walk-through on how to navigate the Startup Acquisition Process 

Process of Startup Acquisition

If huge multinational companies want to acquire a particular startup, then the team has achieved quite a lot. For those who are looking to embark on the acquisition process in the near future, here's a brief idea and process of what to expect.

Step 1: Initial Motivation and Consideration

The initial process starts when both companies identify their industry's preferences and expectations. Next, set clear goals and expectations for the acquisition. The motive should not be just personal gains but some other factors as well that would impact the success of the business. The companies have to make sure that they're financially as well as psychologically ready for this step.

Startup acquisition process
Setting up exact pieces of the puzzle by acquiring businesses

Companies take years to build from scratch and there are countless personal sacrifices made by the founders, so the entrepreneurs should be certain about selling their business.

The questions asked to the selling companies are:

  • Why do you want to sell the company?
  • Can the acquirer be the right fit?
  • How exactly do you picture yourself with this acquisition?

Review and study these points individually and then move forward.

Points to be considered to sell the startups could be:

  • To work and grow the existing business.
  • To get access to financial capital.
  • Some personal factors like retirement, ill health, quitting the company, or family obligations.

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Step 2: Sourcing

Businesses for sale are listed in local magazines, directories and online portals. There is a real business deal landscape with technology where buyers and sellers can browse through a number of opportunities and opt for professional ones.

Step 3: Preparing for Due Diligence

Once the buyer and seller are mentally and financially ready for the acquisition, the next step is to get started with the due diligence, which is to consider the legal cases.

Most new entrepreneurs underestimate the power of legal and financial aspects of the acquisition process. The financial experts, lawyers & tax and financial advisors have to be involved for a positive outcome.

Considering the entrepreneurs sincerely want to consider the business for purchase. Here are some factors to be paid attention to legally. The acquisition decision will have tax implications and both the party should consult an experienced tax professional to take care of these.

It is almost important for the buying company to check the new business with respect to applicable regulations, the common ones being Company Law, Labour Laws, and approvals by Banks or Financial Institutions which comes under Legal issues.

Step 5: Assemble a Finance Team

Assembling/hiring a financial team is the next step of the acquisition process. The acquisition process will require all kinds of financial reports, bank statements, which include revenue reports, financial schedules, expense accounts, and so on.

The accounting team may find it tough to function these requests while doing the daily accounting tasks. It is mainly advisable to hire a finance team that holds expertise in acquisitions.

Step 6: Prepare the Team for Acquisition

Now that every step has been cleared and studied carefully, the entrepreneurs need to inform their team about the acquisition of the company. A startup acquisition is good news for most entrepreneurs, it may be otherwise with the working team. It is important to handle the team smoothly throughout the transition and make them comfortable.

Step 7: Seal the Deal

Once all of the above-mentioned steps are cleared, the parties need to select a date for sealing the acquisition deal. This is an important step to finalize the deal and start with the actual business acquisition paperwork, thus start with a new company.

Step 8: Purchase Terms and Conditions

The terms and conditions of the post-transaction will be explicitly captured in the term sheet and then in a more detailed manner in the purchase agreement. There are important deals like deal structuring, setting up payment terms and conditions, warranties, post-deal involvement, and rights and obligations of the seller and the buyer are the most important considerations at this point.

Step 9. Post Purchase Advertisement

Once the deal is done and the businesses are set to operate the obtained ownership, it will become important to share information about this transfer of title with key stakeholders of the business such as creditors, customers, etc.

Conclusion

Preparing the team for a merge won't be easy, despite the success. The entrepreneurs will encounter continuous resistance. However, the decision to do the best for the people and business will be enough providing the existing ones with leadership through the transition. The startup acquisition process is an interesting turn in both parties' lives.

FAQs

What is startup acquisition?

Startup Acquisition is a process wherein big companies buy a small company/startup or has gained control over it by purchasing most or all of that company's shares or assets.

What is meant by merger and acquisition?

A merger means the two or more separate entities have combined authority to control the new joint company and acquisition means taking control over all the authority of another company. Mergers and acquisitions are executed to expand a company's reach or gain market share to create shareholder value.

What is the Process of Startup Acquisition?

Process of Startup acquisition includes the following steps:

  • Initial Motivation and Consideration
  • Sourcing
  • Preparing for Due Diligence
  • Hiring a Legal Counsel
  • Assemble a Finance Team
  • Prepare the Team for Acquisition
  • Seal the Deal
  • Purchase Terms and Conditions
  • Post Purchase Advertisement

Why does a startup want to get acquired?

There could be multiple reasons why startups want to get acquired by big companies. Some of them are:

  • Fund requirement: The company wants to get acquired in order to meet its fund requirements.
  • Debt clearance: Sometimes startups are under debt and they need money in order to clear their debt. So, they look for acquisition.
  • Recognition: The chance of getting identified by various people and companies increases once the startups get acquired.
  • Increase productivity: Startups become less productive after a particular point. Hence, getting acquired by big companies help them to increase their productivity.
  • A desire for exposure: Getting acquired by big companies gives the startup an opportunity to get the maximum amount of public attention.

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