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What to do when the 800 pound gorilla wants to dance

Posted: October 21st, 2011 | 1 Comment »

I was at a CEO summit the other day where the discussion was, “What happens when the 800 pound Gorilla lands on your doorstep.”  The question was in the context of a potential acquiror or strategic investor.

I think we all know what to do when you want to say no.  Witness Groupon turning down a $6 billion acquisition offer.  You just say no, thanks, and hope you’re right.

But what about when you want to say yes?  How can you survive the 800 pound gorilla process to get to yes?  Here was some advice offered by other CEOs, plus an additional treat describing EXPO’s experience with an 800 pound gorilla that went south a few years ago.

  1. SIZE OF CONTRIBUTION:  Generally, you aren’t of much interest to a conglomerate unless you are above $10 mil, on your way to $25 mil.  At that point, no matter who the conglomerate is, they can imagine you having an impact on their business someday (mostly through sales integration with some other piece of their company).  Another way to make it happen is to be a straight technology platform play, where it’s better to buy than build for them.
    EXPO’s example
    :  In our case, we were under these amounts, but tripling revenue each year.  Being small probably made the deal much easier to kill.
  2. ACQUIROR OWNS THE NUMBERS:  Someone on their side HAS to own your numbers.  Deals in conglomerates get vetoed by the CFO all the time…not because the CFO doesn’t believe in the business or the numbers.  They will kill it because no one will step up to OWN the numbers.  Believing in the numbers and owning them are two separate things.  Believing means that the revenue growth makes sense to you.  Owning means that you take responsibility, understand exactly where the revenue will come from, put your rep on the line that you/the team will make it happen.  That requires a deep understanding of what you do, how you do it, and who your customers are.  Depending on how closely your internal champion already knows and understands your business, that’s a lot to ask.
    EXPO’s example
    :  In retrospect, we had many operational champions who believed, but none who would own.  I think the barrier to owning was that they did not truly understand our business.  If you’re selling banner ads all day and shooting for 5% topline growth, I can imagine it’s very difficult to stand behind a evangelistic new media product that is planning to triple growth.  (Which, btw, we did).
  3. NO MARKET FLUCTUATION ON THEIR SIDE:  Assuming the 800 pounder is a public company, one of the variables to check would be the gorilla’s own market stability.  Any external market fluctuations in their industry, or hiccup in their own story for the Street can lead to unpredictable, last minute decision making.  While the stars don’t have to align for the transaction to move to close, especially if you have a numbers ‘owner’ above, the stars definitely can’t be out of whack.  In an unstable environment, new announcements like investments and acquisitions, even smart ones, become market moving variables they will not want to introduce.
    EXPO’s example:  2 weeks after our deal went south, the other side announced lower revenues for the quarter, year to date, and the rest of the year.

I want to attribute many of these thoughts to a particular CEO, Adam Slutsky, who is CEO of Mimeo, a hyper-fast growing online, on demand document printing solution.   He was also co-founded Moviefone, which was acquired by AOL and then stayed at AOL awhile.  So, he was able to provide a lot of experience from all three of those vantage points.

Next post:  what can you do to test the waters of the deal strength?

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One Comment on “What to do when the 800 pound gorilla wants to dance”

  1. 1 Peta Dunia said at 6:12 am on April 9th, 2012:

    […] post is a follow-on to the discussion about a large-conglomerate offer to a smaller company.  Having gone through an […]

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