How to Plan for M&A Success

What early-stage companies should be doing from day one.

Managing the M&A process and developing relationships with stakeholders early in your company’s lifecycle are critical responsibilities of the CEO and executive team. Long-term planning will make all the difference between M&A success or being a company that really struggles with the process.

Bottom line: It’s never too early to get started. In a recent masterclass for the Rally portfolio, a panel of M&A experts talked about everything from why buy-side and sell-side M&A should be part of your early-stage company’s strategic plan to how you go about building the right relationships.

One important topic we discussed is what a CEO should be doing from day one in terms of laying the groundwork to ensure M&A success down the road.

Justin Kaufenberg is a Managing Director at Rally Ventures and a Co-Founder of SportsEngine, which was acquired by NBC Sports in 2016. He completed 14 acquisitions while CEO of SportsEngine.

Justin talked about how early-stage companies typically under utilize and under prepare for M&A. Justin shared how SportsEngine created a team early on to evaluate buying and selling companies. The group met regularly, built a data room and maintained detailed lists of potential companies to acquire and companies who might one day acquire them.

As a CEO, the time you spend on M&A changes as your company grows, but, generally, CEOs wait too long to get started on this process. By the time you reach $5-$10 million in ARR, you should have an executive team that you can really trust. This is a moment of transition, where your time spent on M&A goes from a fairly small sliver to upwards of 25% of your time.

Building relationships with potential strategic partners that could become a buyer of your company is a key part of your role as a CEO. This is also true of building relationships with companies that you may want to acquire along the way. Justin recalled how he built his relationships with bankers, corporate development leaders and other CEOs over the course of many years. Shared history matters when the time comes for a transaction.

Ivan Brockman is a Partner at PJT Partners and a Rally Technology Partner. He has 25+ years of experience in corporate finance and M&A for both public and private technology companies. Ivan expanded on the importance of building relationships early and talked about how to best approach your relationship with your banker.

CEOs often incorrectly think they only need to focus on M&A when there is inbound interest or they decide to start a process, and that is when they should talk with and select an investment banker. The entire panel advised building a strong relationship with your banker early and leveraging their knowledge of the market — both inside and outside of the M&A process.

Ivan advised that the bare minimum time frame you want to reach out to your banker is 6–9 months before you think you’ll have an event — whether it’s a capital raise, exit process or acquisition. Start with the premise that earlier is always better.

Marc Brown is a Partner and the Head of Growth at EQT Growth and a Rally Technology Partner. He previously oversaw Microsoft’s M&A and strategic investment activities. Marc talked about how to approach building a relationship with a large acquirer, like Microsoft.

Marc acknowledged that it can feel insurmountable for an early-stage CEO to reach the head of corporate development at a large organization. But, you do have to get to know those groups in advance as it’s very unusual for a large acquirer to do a deal without knowing the company first. Bankers can help steer you to that first relationship, or, given the size of an organization like Microsoft, you can connect with departments outside of corporate development.

Marc talked about how he’s seen a lot of success with companies who started further down the chain, and first developed relationships with product or GTM teams. Building these relationships first can help demonstrate the value of your company and help develop internal champions for your product who will ultimately lead you to the decision makers.

Jeff Hinck is a Founder and Managing Director at Rally Ventures, with 20+ years of experience in Tech VC. Jeff expanded on Marc’s comments about having multiple touch points into an organization. He also pointed out the overlap between partnership and acquisition benefits.

Companies sometimes work with acquirers as partners for a significant amount of time before the acquisition offer is made. It’s a way for an acquirer to know the company and understand their product and market potential before they acquire it.

Not all partnerships turn into an acquisition, but some do. The message is that tracking and building these relationships early can open many avenues of growth.

The content for this article was created from a recent masterclass on mergers and acquisitions. Rally Ventures occasionally hosts masterclasses for our portfolio companies, led by experts and industry veterans.