Getting acquired is a big deal and a long process in most cases. It requires a lot of negotiation and paperwork going back and forth, and it also means taking time to think about what to do next. For many founders, the decision is a challenging one: should you stay or should you go?
After having spent years building your startup, it’s understandable to not want to leave – but at the same time, staying it can lead to some emotional turmoil and hardship, and it might not be best for the company going forward.
Typically, the position of founders and c-level staff after an acquisition deal depends on different factors, including the terms of the deal, the strategy of the acquiring company, and how they individually feel. There are four things that tend to happen:
- Retention: The founders and key staff members might stay put. This certainly helps ensure continuity and maintains the company’s culture and expertise. But, it might create some friction and internal competition
- New roles: Founders and key staff might be offered a new role within the company, often with more pay and responsibilities, or maybe an advisory position
- Saying goodbye: Sometimes the easiest thing to do is to walk away and many founders may choose to leave, or, even be asked to leave.
- Earn-out provisions: Some deals include so-called earn-out provisions which allow founders to receive additional compensation based on company performance pst-deal.
So, how do you know what the best decision to take is?
Staying put after an acquisition offers job security, gives you chance to keep growing and maybe even get a better piston, you can still access resources and be part of what you created, and, with different stock options or benefits up for grabs, it could be a financial no-brainer.
On the other hand, though, personality and culture clashes are very common. Different strategies, values and perspectives are likely to come up and friction is likely to be felt. Changing roles can also be hard – and it takes a certain type of personality to be able to deal with such an abrupt change in responsibility/seniority.
Richard Townsend, CEO at QA Workforce Learning, stayed put after his company, Circus Street was acquired. Richard founded Circus Street with his brother in 2009 and quickly grew it into a global business offering digital training to clients like Nike, Adidas and Coca-Cola, before selling it to QA.
We chatted with him to learn more about the process, how to go about it, and what different challenges and pain points you need to be aware of.
Why did you decide to sell Circus Street?
“We had built Circus Street with the same ambition as a lot of other founders – to one day exit to provide long term financial security for your family.
“When we started looking at a financial exit in 2021 Circus Street was in a great position. The pandemic had led to a boom in digital upskilling and training and we had landed a number of large global companies as clients. The M&A market was also very healthy, there was a lot of private equity cash available and interest in acquiring tech startups was at an all time high. However, we also knew that edtech is a notoriously difficult market to exit. It’s difficult to find the right buyer or merger partner because the industry is so specialised.
“Our M&A advisory firm Houlihan Lokey first raised the prospect of the partnership with QA. When we looked into it we realised that a deal could make a lot of sense. QA operates in an adjacent and complementary market to Circus Street, approaching upskilling in the same way as we do but in tech skills such as cloud and cyber, whereas we focus predominantly on more commercial digital skills. There was also a lot of overlap in areas such as data and agile working. When we spoke to QA’s CEO there was a lot of great chemistry and the timing made a lot of sense. QA had previously provided a lot of classroom based learning which was less practical during the pandemic. As a result, they were keen to rapidly expand their virtual learning capability and skills offering. QA had already purchased virtual upskilling company Cloud Academy, which was similar to Circus Street but focused on training a different set of skills. We could quickly see how QA, Circus Street and Cloud Academy could all fit together to create a very powerful group.”
What advice do you have for founders seeking to exit?
“Time is an incredibly important factor – both when you want to exit and how long you let the process play out. The personal or business motivation a founder has to exit may not marry with the best market conditions or vice versa. You need to be able to move quickly and seize opportunities. This means ensuring you and your original investors are on the same page from day one; they know and support your ultimate exit goal.
“The temptation many founders fall for is letting the whole process run and run because they want to maximise the window of opportunity to get the best deal. However, this can easily lead to momentum being lost and market conditions changing so that you lose out on deals that were already on the table. A tight timeline focuses minds, adds discipline and helps in negotiations.
“Getting the best deal for your startup means really maximising its strengths. For Circus Street the nature of our long term contracts with companies like Nike, Adidas and Coca Cola meant that the company was on a very sound and predictable financial footing. However, the kicker was our content creation capability – it showcased the future potential of our platform and made it easy for potential partners to see how we could radically enhance and future proof their business. The key for founders, before they embark on the exit journey, is to go beyond what their startup does on paper to identify the attributes that are most attractive or unique to the market, and then bring these proof points front and centre.”
What advice do you have for founders who stay on post-acquisition?
“Finding the right partner means going beyond the monetary value of what they offer. Many businesses will want the senior leaders to stay on – even for a short period – as a result, you need to like and respect their company culture. Not only will this mean that finalising a deal is much easier, it will radically reduce the chance of future conflict.
“It’s also important to feel safe in the knowledge that the acquirer has a sound plan for your startup and your team. After all, you will have poured all your time and energy into building it from scratch – it’s not as easy as you might imagine to let it go. This process will be so much easier if you know that your business is in safe hands and it has a great chance of going to new heights. If you manifestly disagree with what the acquirer has planned for your startup or you don’t share their vision it might be best to walk away – no matter how good the deal seems financially. It’s really important to be on the same page as the acquirer. This means getting into the nitty gritty of what your management role and contribution will be. It’s very rare for this to be exactly what you want because many acquirers will be wary of the previous founders having too much influence or may feel they may be too disruptive. However, fully clarifying and documenting your remit during the negotiation phase means that there won’t be any unpleasant surprises or misunderstandings. Naturally, joining a new company will mean changing your ‘founder mentality’. You will have to be open minded and willing to change how you work.
“My initial decision to stay on with my co-Founder was to help hit the post-acquisition targets. However, as we got to really know how QA operated and saw how well Circus Street integrated into the wider business we started to feel we could do some really cool stuff. It was amazing how quickly our position had changed from being ready to move on to a new post-Circus Street project to being fully energised in taking the whole group to the next level. It’s something all founders should keep in mind – you need to keep your post-acquisition plans flexible as you will never really know how you will feel after you exit.
Any other advice for founders planning to exit?
“Nearly all exits are fraught with complexity and require top specialists professionals to see you through. It may be tempting to try to keep costs down by using small firms or general practitioners but this seldom goes well. You need good corporate lawyers, M&A advisors, specialists accountants and plenty of advice from your investors and stakeholders. Do not try and run it alone – listen to people who have done it before and keep your team engaged as much as practically possible.
“Exits are very time consuming, stressful and distracting. It’s not something to ‘dip your toe in’. It’s very easy to lose sight of the day-to-day running of the business and this can lead to performance taking a hit which in turn makes the exit more complicated. You need to plan how your business will continue to run well and hit its goals as your full time job becomes managing this process.
“Remember, the majority of M&A deals fail either at the negotiation stage or soon after acquisition. Go into the process with your eyes fully open and remember getting an acquisition offer is only the start – there’s a long way to go before it’s fully realised.”
