In every sale of a company there must be both a buyer and a seller. This article is part one of a two-part series on Selling Your Company. In this article, we will be exploring the perspective of a buyer – someone who wants to buy a company, maybe your company. We’ll delve into what he’s looking for in an acquisition, and the do’s and don’ts that will make him decide to buy or not, and what could kill a deal at the very last moment.
GoDaddy.com is best known as the world’s largest registrar of website domain names and currently has 13 million customers. They also offer web hosting, and email services, and are constantly on the lookout for new services to make GoDaddy an indispensable partner for their customers. Recently we spent some time with Steven Aldrich, GoDaddy’s SVP of Business Applications, to learn how they go about finding acquisitions and how companies should position themselves as potential acquisitions.
Immigrant Business: A few months ago GoDaddy acquired Mad Mimi, a company we wrote about a couple of years ago. Can you tell us why you decided to buy them?
Aldrich: We were looking for ways to grow our business and we wanted to bring email marketing into our product portfolio. We looked at all the companies out there and Gary and Dean Levitt had built a company that was at the top of the pyramid in terms of customer experience.
I wanted a great team with a great product and business that is successful so I wouldn’t have to go fix anything.
Immigrant Business: So Mad Mimi had to potential to fill out a spot in your portfolio, was there anything else that caught your eye?
Aldrich: I wanted a great team with a great product and business that is successful so I wouldn’t have to go fix anything.
The ability to take a company to a stage where you have a team, a product and a business, and those are three distinct components, and having all three is fantastic. Sometimes people can only build a product, and sometimes they can only build a team, and you get a business idea on the backend that you haven’t quite executed on but it’s quite spectacular. But Gary and Dean have been able to create all three, which is really hard to do.
Immigrant Business: When we interviewed Gary Levitt for ‘Jazz Guitarist Becomes Web Entrepreneur‘, he was building a virtual team of players working all over the world. Isn’t it difficult to blend in a virtual company like Mad Mimi?
Aldrich: We needed to adapt how we did business to keep Mad Mimi’s talent with us. We had to figure out how to pay people around the world. They worked incredibly well as a virtual team and now that they’re less self-contained — they have to work with thousands of customer care reps, and other technology teams — we had to develop a new additional way of working. And we have, which is why we’re so delighted to announce the launch of the integrated email marketing product, GoDaddy Email Marketing. It showed that both Mad Mimi and GoDaddy had learned a new way or working together very quickly.
Immigrant Business: How did Mad Mimi come to your attention? Did they call you up and asked to be acquired?
Aldrich: No, not at all. We are always interested in people who feel passion for the entrepreneur, and feel that their mission in life is to make that entrepreneur successful and continue to find ways to service that customer and make them happy.
Typically, they appear on our radar screen when a customer has told us about them, but in Gary’s place, we were looking to add a new product, an email marketing product to our set of products we bring to small businesses. So we thoroughly scoured the world looking for who did that, and Gary’s team came up on top.
GoDaddy is focused on very small businesses, outfits with 5 or fewer employees. We do service larger businesses, but the bulk of small businesses have five or fewer employees, so that’s where we focus. It’s pretty hard to make a go of it as an entrepreneur in that space because the amount of funding in a smaller business is less than a bigger business. So if an entrepreneur has found a way to be successful targeting that type of small business customer, they’ve done something pretty magical. And that gets my attention.
A lot of people ask me, ‘what do I need to do to prepare my company for sale?’ And my answer is, ‘you have to run it really well.’ There’s no magic bullet.
Immigrant Business: Okay, so now that you’re interested, what happens next?
Aldrich: We have more substantive discussions with the entrepreneur. We want to find out things like whether it’s the right time for them to consider a sale. Sometimes the timing is right, and sometimes they say, you know, we’re delighted with what we’re doing; we don’t want to become part of another company. If so, we tell them we can respect that; we shake hands and they continue on their independent way. If they think being acquired makes sense for them, then there are three phases to the process:
Three Phases of the Acquisition Process
- Getting to the letter of intent, which is a basic handshake on what a transaction would look like
- Diligence and negotiation of an agreement to purchase, (where the target company must be willing to share everything they know completely and honestly)
- Post acquisition and integration phase
Immigrant Business: Could you break this down a little further? What happens at the letter of Intent Stage?
Aldrich: For us, it’s the the investigation and understanding of the business and it’s competitive set from our perspective, and then, hopefully there’s a meeting of the minds between the target company and GoDaddy.
Immigrant Business: And the Diligence Phase?
Aldrich: Actually this phase is a combination of due diligence and negotiation, and at the end of this phase, if all goes well, you close the transaction.
Immigrant Business: What if things don’t go well; what would typically kill the deal?
Aldrich: Sometimes there’s a misrepresentation of how big or how successful the company is upfront. That will always get uncovered later. Sometimes this happens because of over exuberance and stretching the truth a little bit. Generally, honesty and directness is the best policy. But if you’re a million dollar business, don’t say you’ve got 10 million dollars in revenue; that will always be found out, and will to a very uncomfortable discussion.
Immigrant Business: Anything else?
Aldrich: Another big red flag for me is when there’s misalignment around what happens after the acquisition. What I look for is a team that cares a lot about the success of the joint effort after the fact. If the company is looking to sell and the founders want to leave, that means I have to go find someone to run that business, and what happens to the rest of the team if the founder is ready to take a check and walk out the door? What will the rest of the employee base be thinking? It’s really important that the acquisition isn’t the end of the journey but the start of a new one, and hopefully one where there’s joint agreement on how the product will evolve.
Immigrant Business: If you’re an owner, what do you have to do to present your company for sale?
Aldrich: A lot of people ask me, “what do I need to do to prepare my company for sale?” And my answer is, ‘you have to run it really well.’ There’s no magic bullet. Don’t try to position it or frame it. What I tell folks is that, look, if you’re really looking for a sale, it’s probably not going to happen. The goal is:
- Have a company that’s running well
- Have a product that’s meeting a critical customer need
- Have customers delighted with your product
Then you have many options available to you, one of which is acquisition.
It’s really important that the acquisition isn’t the end of the journey but the start of a new one
But if you’re starting a company with the assumption that you’re going to sell it, that’s a very difficult way to start. So my advice is to sit down and have a hard look at what you’re doing. Ask yourself:
- Is my product making my customers happy?’
- Do I have lots of customers
- Do I know how to get new ones
- Do I have a great team?
If you can answer yes to those questions, it’s likely that I will have many options to me as an entrepreneur either to be acquired or to grow independently or to go raise capital if I need it. My advice to folks generally is to define an important problem, generally, and then to build a great business.
If an entrepreneur is successful and success to me means there’s growth, their customers are happy, and much of their new business is coming from referrals — another nice way to gauge how you’re doing….are you getting word of mouth –and can you look at your team and say, wow, these people are really dedicated and really strong in terms of their function, they’re good at what they do, and they work well together. That’s a recipe for success.