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January 31, 2024

Every owner loves their business. This makes selling their company even harder than it already is. But aside from the emotional turmoil that founders go through every exit, there are also a lot of intricacies included in the process. In this article, Russ Heddleston, Co-founder & former CEO of DocSend, discusses the challenges of sell-side M&A and how to navigate them.

"You don't need an exit strategy if you have a profitable company because you can always sell a profitable company to someone.” – Russ Heddleston

Challenges of Sell-side M&A

According to Russ, as a founder, it's hard to sell the business because owners can become very emotionally invested in the company. However, If there is an opportunity to sell, it means the company is doing something right. As part of his fiduciary duty, selling the company is something he always knew was possible, but comes with a lot of challenges. 

  1. Identifying the right time to sell - As an owner, it’s impossible to know when to exit. At any given moment, the value of the business can either go up or down. Founders must look at all the factors, and then it's a very personal decision.
  1. Balancing stakeholder’s interests - Although employees don't really get a vote in it, preferred shareholders usually have blocking rights on the acquisition. Getting their buy-in is a crucial consideration in sell-side M&A.  
  1. Involving the right people - Confidentiality is of utmost importance during M&A. Deciding who are the right people to involve during diligence is critical to the transaction’s success and the survival of the company. During his time, Russ only included his co-founders, board members, HR and their Head Chief of Strategy.
  1. Participating in due diligence - Due diligence can be extremely distracting. If the founder needs to constantly run the business, the company can end up in a really bad spot, especially if performance starts to degrade.  
  1. Post-merger integration plans - Sellers usually don’t know what's happening on the buyer side, and what would happen post-close. But the reality is that, while sellers are too busy working on the deal, closing the deal is just the beginning of a long and tedious work. Seller’s must work closely with the buyer and spend more time on the post-acquisition integration plan.

Key Factors for a Successful Exit

Despite many challenges, owners can ensure they have a pleasant and successful exit if they have a great business model. There’s always a market for a great company, with good products, real customers and cash flow. 

Furthermore, a great business will give owners options. Sellers will almost certainly get a good exit if they are not desperate to sell. Companies who are unprofitable are the ones who will have trouble selling. 

Having some competition is also helpful, as it helps create potential acquirers. During sell-side M&A, having multiple bidders gives sellers some sense of the market rate for the company, which is crucial. 

How to manage diligence in Sell-side M&A

Distracting the business is the worst thing any seller can do during M&A. If the deal doesn't go through, then they will have to go back running the business, and it’s worse off than where they started. 

The best way to handle the incoming diligence team is to make sure the company has strong leaders that the owners can trust to take care of the business.

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