Situation: A CEO is evaluating an acquisition which could significantly contribute to his company’s financial position. Patented technology may add value to the deal. The founders of the acquisition target are willing to work part-time to facilitate the transition of their technology to the acquirer. How do you evaluate an acquisition?
Advice from the CEOs:
- Set a timetable to close the deal or walk.
- Two key factors in the due diligence process will be strength of the intellectual property and cost of the acquisition long term.
- Another key factor to evaluation will be how this opportunity fits into the company’s larger financing plan. Currently the company is undertaking a financing round. How much will this acquisition contribute to or distract from the financing round?
- If this is a primarily a value-add opportunity, will it add to the larger financing round?
- Can the larger financing round be completed on time while pursuing this opportunity?
- An option is to negotiate a white label agreement – an agreement that will keep the company in the game while completing the larger round.
- If the founders are not amenable to a delay, what is the cost in terms of funds and effort versus the larger round.
- The technology appears interesting, but the timing is bad given your need for the larger financing round. Here’s an option.
- Go to the founders and start the discussion. Secure a license or hire their programmer. Let the technology go dark until the financing round is completed.
- There is value here – but do this as a side focus if it’s not too expensive. Assure that the deal includes both rights and the underlying algorithms.
- Delegate this to someone else in the organization. The CEO’s focus is the larger financing round.