Earlier this week, I attended the TechNW 2011 conference organized by the Washington Technology Industry Association (WTIA). The
conference was very informative and full of interesting presenters and topics.
The corporate development panel discussion moderated by Tom Huseby (General
Partner and founder of SeaPoint Ventures) was particularly interesting for
startups (and relevant to my practice). The panelists were Neeraj Arora
(Principal, Corporate Development at Google), Ryan Aytay (VP
of Corporate Development at Salesforce.com), Ryan
Cooper (Corporate Development Director at Microsoft), and Amin
Zoufonoun (Director of Corporate Development at Facebook), all companies
that have grown a great deal through partnerships as well as acquisitions of
other companies. The general discussion surrounded merger and acquisition
activities and drivers from the perspectives of Facebook, Google, Microsoft and
Two specific questions relating to the value of
investment bankers in the M&A context and timing of the M&A process
stuck out because they are questions that frequently come up with early stage
Do investment bankers add value to the
M&A process? And if so, where is the value?
Although each of the panelists had somewhat different perspectives, the
general takeaways were:
My experiences are generally the same as the panelists.
In my opinion, for most startup M&A deals a banker's primary value-add is
in organization. A banker can also be helpful if there are multiple potential
interested acquirors or if management needs help (on the business side) with the
negotiation of terms or rationalization of the valuation - and particularly
helpful if there is a bidding war among potential acquirors. Lastly, I believe
that bankers can serve an important motivating role in forcing a startup's
management, directors and major investors to focus on a transaction and get on
the same page (i.e., with respect to how committed they all are to
pursuing a transaction, how aggressively and at what price they are willing to
do so, alignment of value expectations, and where the company's value may
reside). This evaluation process can often lead to a company backing off a sale
process and refocusing on development or fundraising efforts, (often
In certain circumstances bankers may add tremendous value (particularly in very
large deals); however, a startup that has a strong board and an existing
set of strong advisors (particularly in a relatively small transaction) may be
able to achieve many, if not all, of the "value-adds" mentioned above without
How long should the M&A process take? How quickly can an
acquisition get done? What is the ideal timing?
All panelists agreed that, when trying to acquire
startups in the tech space, speed is important and time is your enemy. The ideal
timing seemed to be a month between signed-term sheet and a signed-merger
Google's Principal of Corporate Development noted
that his sense of appropriate timing was between two weeks and two
months. Facebook's Director of Corporate Development noted that he
believes Facebook's advantage is speed and indicated that they have "done deals
in a couple days or a couple weeks."
All panelists agreed that the two biggest factors that
might slow a deal are a startup not having (i) its corporate documents in order
and (ii) the necessary personnel available during the transaction or to meet
with the acquiror (on the acquiror's schedule of course).
In my view, there are three stages for an M&A
transaction and the timing usually plays out like this:
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