Software Business in the Middle East

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This is a summary of the post made by Max Kraynov. The translation is made from Russian and it is done in free style – the main goal was to express the meaning of the original post.

The reason I made this translation is to explain my English-speaking colleagues the hidden troubles in acquisition offers.

The fourth – What the buyer wants to do with the startup after acquisition. 1). Shut down the product or team – they simply want to get rid of the competitor. Even if the competitor is not very dangerous, they might cause larger company certain headache. In this case the buyer is interested neither in the product nor in the team.

2). Shut down the product and use the team for another project. This is a typical scenario of acquire-to-hire. The only problem here is that team most likely will not be happy when their baby they spent so much time and effort on will be closed.

3). Develop the product further using the same team. The development strategy might be changed to align with the buyer’s needs. This is a more optimistic option of the previous one. The product is still alive, and although it will move in the different direction, the team might be OK working on it further on.

4). Invest into the product and continue development. This is the perfect case, but a very rare one. If your product is so good, then you would look for investments rather than selling the business to anybody else.

The fifth – What happened to all the companies acquired by larger company before? This is the question you would ask the buyer to get information about:

1). How they undertook due diligence and how fast the acquisition was made. Also, it is not a bad idea to ask for contacts of the people from previously acquired companies.

2). Problems that came up during acquisition. It might be problems related to due diligence, or disagreement in price or conditions, etc. The reason of those problems might be that the smaller company has not grown enough or both parties misunderstand the acquisition process.

3). Plans for other acquisition of other companies. Answer on this question might help you to understand the real reasons why the larger company has made you an acquisition offer.

If your company is the first one in the list of acquisitions planned by the buyer, it might make sense to agree on merger rather than acquisition.

The sixth – How large the buyer is and what their primary businesses are. You can use the following test to see how serious the buyer is with his acquisition offer.

1). If the buyer is the same size as you, the possibility of acquisition is less than 10%. Possibility of merger is 30%.

2). If the buyer is 3-10 times larger than you, then possibility of acquisition is equal to 30%, and possibility of merger is equal to 10%.

3). If the buyer is really large and serious company, then…large and serious companies do not often buy young startups, although there are exceptions like Google that used to buy startups. So the possibility of either acquisition or merge in this case is almost 0%.