Getting Bought vs. Getting Sold: Maximizing Your Company’s Value

December 2, 2021

Imagine, having put your house on the market during a housing boom, you sell to an interested buyer. It would be technically correct to say your house was bought, and it would also be accurate to say your home was sold. At first glance, the difference between the two seems merely semantic in nature.

On a substantive level, however, there’s a big difference. Perhaps when you listed your home, you did so with the knowledge that your house would sell quickly, for the best price Given this backdrop, it’s fair to say that your house was bought. You wisely took advantage of inbound interest during a frothy market and cashed out at the right time.

Now let’s alter some of the key details in this scenario. What if, rather than putting your house on the market during a boom, you listed it as the market was falling and buyers were scarce. Moreover, maybe you were just hoping for a good offer to arrive, but didn’t have any sense of who might be interested in the home. With this set of facts, we can safely say that your house was sold.

The Case for Getting Bought

If you have a growing SaaS company, at some point you will likely look to exit, and you’ll of course want to receive the best possible price. Going back to our housing analogy, there is a strong case to be made that you should aim to be bought, not sold. What this means is that you should have an idea of who your likely buyer will be. It could be a competitor, it could be an upstream customer, or it even could be a firm that sees your product as complementary to their existing offering.

The fact is that in probably 70-80% of corporate M&A transactions, the parties already know each other. The buyer knows that the target is and has been a well-run company, and may even have good relationships with its senior executives. A classic example in this regard is Facebook’s purchase of Instagram. Mark Zuckerberg mentored Instagram’s founder when the latter was still in college, so the two knew each other well.

What’s more, in the majority of cases, the deal doesn’t come out of the blue; Informal discussions often happen months or years leading up to an acquisition, especially if the two teams know each other well. In some cases, negotiations about a potential transaction occurred a few years back, but the timing wasn’t right for one of the parties. Long story short, it’s much easier to re-start those talks than start from scratch with another potential suitor.

Ultimately, the case for getting bought boils down to leverage: You want people pursuing you. To maximize the proceeds from your exit, you want to have solid relationships with people and firms that have expressed interest in acquiring you.

The Case for Getting Sold

Not everyone, buys into the “Get bought, not sold” adage. Indeed, as this banker argues, the best way to get the most for your company is to put yourself on the market. And the way to do this is by hiring an investment bank to facilitate the auction. A competitive sales process gives you leverage, because it can attract the greatest number of interested parties, which can only drive up the final acquisition price. By contrast, limiting your discussions to those you have relationships with puts them in the driver’s seat.

Getting Bought AND Sold at the Same Time

It’s easy to think of getting bought or getting sold as mutually exclusive (i.e., you are either bought or sold). But it’s not an either/or proposition, and you can benefit from a synthesis of the two approaches. You can achieve this by having a bank run a competitive process, while having a good idea of who your likely eventual buyer will be. These could be firms you have good relationships with, and who may have already expressed an interest in your company. So, while you are putting your SaaS business on the market, you’re not doing so on a wing and a prayer: You know who probably will be the successful buyer, and if someone out of the blue trumps them with a higher bid, that’s even better.

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