If you've been hoping a giant like Google, Microsoft, Facebook or Cisco will scoop up your company, here are some tips: Don't e-mail Steve Ballmer directly, don't tell wild stories about how great your company is, don't use the press to start a bidding war and don't sign perpetual contracts with customers.
These are a few tips that executives in charge of acquisitions at the companies told the tech community in Seattle at the TechNW conference on Monday. Despite the struggling economy, they are all continuing to make strategic acquisitions.
One of the worst transgressions, most of the executives agreed, is lying to a potential acquirer about your company. Some "come in and tell insanely wild stores about the deal they were about to sign," said Rob Adams, senior director of corporate development at Cisco. The number of people who do that is surprising, he said. But it's an instant deal breaker.
"When I ask if you have open-source software in your product don't say no if you do," said Marc Brown, Microsoft's managing director of corporate development. He expects a bit of exaggeration from startups, but there's a fine line between overselling your company and lying, he said.
Other tips from the executives included advising startups to be mindful of the kinds of contracts they sign. Facebook's Mike Brown, manager of corporate development, has seen plenty of contracts between companies he's interested in and their customers that are perpetual. Facebook often wants to "gracefully wind down" customer deals after making an acquisition, and such contracts make that very challenging, he said.
He's also seen contracts that may stretch the intent of terms-of-service deals with providers. Sometimes small companies can get away with that. "But when Facebook considers acquiring the company that puts us in a precarious position. We have a target on our chest for litigation," he said.
Cisco has also seen those kinds of bad contracts as well as "systemic open-source problems" at companies it was interested in buying, Adams said. Cisco will have to consider how much it will cost it to get out of those contracts or correct those issues, and whether that cost makes the acquisition worth it.
The executives also said that they aren't solely focused on getting the lowest price for an acquisition. "I see junior people who join our team and they're all about the valuation and price and having fun negotiating for the best price," Amin Zoufonoun, director of corporate development of Google, said. But as Google has done an increasing number of acquisitions it has discovered its most successful acquisitions have carefully considered other factors, more so than price.
For instance, Google has learned that it's important to make sure that the top executives at the startup think along the same lines as Google and are likely to be happy joining the search giant, he said. He also talks seriously with product managers, vice presidents and executives at Google to make sure they are committed to supporting the acquired entrepreneurs and technologies. "Otherwise, it's a waste," Zoufonoun said.
All of the executives on the panel said they hate to get into a bidding war, but they will if absolutely necessary. "It's a fact of life but we don't like it," said Microsoft's Brown.
But a manufactured bidding war could backfire. "If you say you're committed to Google and you start negotiating in the press to start a bidding war, we'll probably drop out," Zoufonoun said.
If a startup is keen on an acquisition by Microsoft, e-mailing Steve Ballmer directly is not a great idea. Even though Ballmer regularly invites people to e-mail him directly, doing so will likely backfire. "I can tell you, it does not help to send Ballmer an e-mail," Microsoft's Brown said. "If I'm already in a conversation with you, I get pissed off when Steve gets an e-mail and then calls me."
Ballmer isn't closely involved in acquisitions, he said. "We involve him when necessary," he said.
Most of the executives on the panel sought to encourage entrepreneurs to consider entering acquisition talks without fear that the acquiring company will steal their ideas. "The first time some major VC says my company doesn't treat them fairly, my ability to negotiate the next deal is impossible," said Cisco's Adams.
That fear of getting a bad reputation based on even a hint of stealing ideas is enough to prevent big companies from doing so, said Zoufonoun.
For startups looking for a buyer, Google is still probably the best bet. The company did more acquisitions in the last year than any previous year. "The pace is probably going to continue to be maybe not as high but fairly high," he said. "Things are evolving so rapidly that for us to be able to innovate outside our core DNA as rapidly as necessary is probably a losing battle, so we'll continue to acquire."