94. What should everyone know about mergers and acquisitions? What happens to the shares/shareholders of company A when company B acquires it by paying cash? What happens when they take A’s shares and convert them into B’s shares? Let me take a stab at some perhaps less obvious things to know about M&A, from the perspective of a start-up founder at least. Companies don’t buy start-ups. People do -- CEOs and SVPs. There are 1,000 companies Google or Apple or Salesforce or Facebook or Oracle or whomever could buy, that all could make strategic sense. But that’s not how M&A happens. It’s when a CEO sees a strategic gap in the future, or a VP sees a gap in what he/she can get done in the next 12-18 months -- and fills that gap with a deal, right or wrong. VC multiples drive deal price. Many deals are sort of valued off financial metrics and comps, but the actual price is often based on what would “clear” the VCs -- maybe 2x for the late-stage VCs (see Instagram, Yammer, etc. acquired at 2x last round price), or 3-4x mid-stage VCs. Corporate M&A departments and others are OK with this because it’s a process and this is what it takes to “clear” seemingly good deals. M&A is Capricious. Because M&A is driven by individual executives at companies, not companies per se ... it’s capricious. Especially at the non-CEO level. Priorities change. YYou may be just as good a strategic fit in 12 months, but if priorities change, that offer may never come back. In fact, it likely will only come once per individual potential acquirer unless you are Twitter, Facebook, etc. You Have to Stay. no longer is M&A a one-time cash-out. Most deals have 2-3 year retention, vesting, and re-vesting programs, and potentially 2-3 year earn-outs. Assume if you get acquired, you’re committing at a minimum to 24-36 months at the acquiror. No One May Care That Much in 6-9 Months. You have to make hay after you are acquired. Everyone at the acquirer will have their eyes on you and want to help -- at first. Then, they’ll acquire someone else, and attention will go there. You’ll have to make it happen, and continue the momentum yourself. SAASTR.COM 92