One of the most exciting things about getting acquired is the opportunity for your people and products to be part of something larger than they are today…

In 2021, the add-on acquisition market intensified to record levels. While “buy-and-build strategies” (when a private equity firm invests in a platform business and then builds out scale with a series of smaller add-on acquisitions) had historically accounted for 40% of private equity deal volume, they grew to a 70% share in 2021.

For most founders and CEOs, exploring a potential acquisition with a private equity firm and one of its platforms is a first-time experience – and it’s a game-changing moment for the future of the company and their career. That’s why we asked five leaders of businesses acquired by LLR portfolio companies between 2019-2021 to share their insights for others considering this pathway to growth opportunities.

We owe a big thank you to each of our participants:

  • Richard Clarke – CEO of Trakopolis / Now VP Operations & International Business at Geoforce
  • Jeff Evert – President of CovertTrack / Now VP, Western Law Enforcement Sales at 3SI Security
  • Hal Mady – CEO of Dash / Now CRO of DaySmart
  • Christopher Rywelski – Co-founder of RazorSync / Today leads SaaS division of Celero Commerce
  • Fulton Wold – Co-founder of BOLDplanning Inc. / Today leads BOLDplanning unit of Agility Recovery

Advice from 5 business leaders about being part of an add-on acquisition

1. You know best when the time is right – but should always be prepared

Every situation is unique, and you know your business best. Surround yourself with trusted advisors to help you think through the options for growth – organic, private equity, add-on, others – and develop relationships with potential buyers. Peer founder/CEOs, lawyers and accountants, board members, local friendly investors in your market, can all be helpful.

If you’re getting inbound inquires, it’s a testament that you’re doing something right. Even if you aren’t ready to hit the market yet, both our panel and the CEOs and CFOs of other exited LLR portfolio companies strongly recommend that you should always be in a state of preparedness to field and respond to these inquiries.

Pro Tip: Christopher Rywelski from RazorSync advises maintaining an up-to-date set of insights about the company’s current position and future outlook. That way, when inquiries are received, the ready-use of these templates as a phone script or an email enables you to deliver a timely response, reduce the distraction of having to pull it together each time, and help ensure consistency from one inquiry to the next.

2. Listen carefully for a well-developed thesis and vision. Where do you fit into the narrative?

One of the most exciting things about getting acquired is the opportunity for your people and products to be part of something larger than they are today, and that the company may not have been able to achieve on its own. But make sure you feel confident that the acquirer and their investor have a well-thought-out, data-driven growth strategy and a clear plan for how you fit in. Seek clarity on where and how they’ll put resources behind your side of the business to be part of the growth story and be certain all parties believe in and are committed to that vision.

Talk candidly to companies in the PE firm’s portfolio who were acquired as add-ons, as well as other peers who’ve been through similar transactions.

3. Understand the full range of advantages that joining a strategic platform can create for your company and employees

Your employees have worked long and hard for you, so your top concern is likely to be, “how will this impact my people?” These are just a few of the many opportunities to keep in mind:

  • Significantly more resources to do the things they couldn’t do before, and at a faster speed
  • Ability to take bigger risks with less disruption
  • Access to a deeper bench of technology, knowledge and talent
  • Better benefits and employment packages as part of a larger organization
  • Greater stability and security, and less uncertainty than a small company

Jeff Evert from CovertTrack admits having hesitations about private equity early on, but the CEO and other leaders from 3SI made a strong effort to help him overcome that, understand the growth opportunities for CovertTrack’s employees and technology, and build enough trust to engage in diligence with a competitor.

4. Look for a commitment to being a good partner by the buyer and investor

Diligence meetings reveal how well the buyer and investor know your space and want to understand your business, but take note of whether they make an effort to get to know you outside the conference room. Did they get on a plane and sit down with you one to one – or find a creative way to do this while respecting comfort levels during COVID? Are you confident they are genuinely trying to align with your vision and craft a fair offer? It is important to recognize through the details that sometimes the highest offer isn’t always the fairest.

Richard Clarke developed an industry relationship with Geoforce over time, so when the moment was right to talk about acquiring Trakopolis, they’d already built rapport at the leadership level, understood the synergies and each other’s priorities, and he felt good about Geoforce’s approach to integrating his business and his people.

If you are fortunate to have multiple offers, they can be hard to differentiate. Buyers who are committed to alignment and partnership will help you understand their offer and how it speaks to your needs and goals. If they don’t, be weary that it’s a one size fits all approach. This includes what the deal means for you personally. Rolling over equity is complicated, and the PE firm should be willing to help you understand it.

Pro Tip: Much of this really comes down to trust. Take time to build trust and seek outside input. Talk candidly to companies in the PE firm’s portfolio who were acquired as add-ons, as well as other peers who’ve been through similar transactions for their insights.

5. Don’t be afraid to ask a lot of questions

Most leaders who sell a company at this stage haven’t done it before. You spend every day on your operations and leading your teams, but the other people around the deal do this all the time – the bankers, attorneys, the private equity firm, and maybe the strategic buyer. Ask about anything and everything you do not fully understand – you don’t want any surprises or hiccups at the last minute.

Pro Tip: If you engage a broker to banker, make certain they know your space and work with companies at a similar scale, so they can guide you through the transaction.

Decide early whether you are willing to prioritize certainty and opportunity for your employees and customers, and alignment around vision and culture, over purely the best financial deal.

6. Do prepare for a greater magnitude of data and effort than you initially expect

There’s no skirting around the magnitude of effort that goes into a transaction on all ends. When our panelists talk to other Founders/CEOs about their experiences, they always stress being prepared to go deeper into your data and documentation than you expect – but it’s for good reasons.

Organizing your data room early is tremendously helpful. Be patient and methodical, structured and orderly. Having a great banker with a history of working with companies like yours can give you a lot of insight for building a CIM and structuring a data room in a way that meets buyer expectations.

7. Prioritize the desired outcomes. What is most important to you and for your company?

Going into an acquisition process, know what you are looking for. Decide early whether you are willing to prioritize certainty and opportunity for your employees and customers, and alignment around vision and culture, over purely the best financial deal. You’ll end up with a collaborative process that way, rather than focusing purely on the financials and then forcing a conversation about the impact on people and vision later.

Hal Mady, former CEO at Dash, emphasized removing emotion to see the full opportunity in front of you. Particularly for founders who coded their original software, try focusing less on the fear of “giving up your baby,” and prioritize the additional resources, engineers, marketing and HR support that should make it even stronger or help it reach new audiences. Becoming part of a platform can also free you up to be creative again and focus on building more great technology, not running the entire business.

Pro Tip: Remember that if you have early investors or other shareholders, you may have to make tough decisions or enter challenging negotiations to fulfill your obligation to those shareholders.

8. Balance the sale process with running your business so that you hit your projections and don’t create distractions

Inevitably, an acquisition process takes longer than you expect. Push yourself and the team around you at a cadence that is sustainable over multiple months. But remember that it’s never been more important to meet the goals and projections that you’ve asserted, too. You must allocate the proper time and manpower to keeping the business going at a strong pace, bringing people into the sale process at the right time and not letting it disrupt everyone else.

Bonus Pro Tip: When the deal is finally done, take a break. Fulton Wold, who led the sale of BOLD Planning to Agility Recovery, likened the experience to playing a double-header baseball game, and the others agreed. It catches up to you later. If able, take some time off to reset your brain before the integration begins.

This GrowthBit is featured in LLR’s 2023 Growth Guide, along with other exclusive insights from our portfolio company leaders and Value Creation Team. Download the eBook here.