How to Sell Your Company

A few weeks ago, I had a conversation with my friend Ariel Hersh, who works at Seek Investments and has been involved in many M&A deals. I asked a straightforward question—“why do companies buy other companies?”—but the answer was much more in-depth than I expected.

Here’s a summary of what I learned from Ariel, organised by the type of acquirer.

Financial Players (Private Equity / Micro PE / Other Investors)

Typically, financial buyers look for companies that are already profitable or have a clear path to profitability. They may also consider installing their own management team. These buyers usually have a defined plan for adding value—such as raising prices, cutting costs, or bundling the business with similar ones. The size of the business plays a big role in how many potential buyers are interested.

I've often heard that $30M ARR is the threshold where the pool of interested buyers significantly expands.

Direct Competitors

We can explore this in several ways. The primary reason to acquire a company is often the synergies it can bring to the buyer’s core business. These synergies can manifest in two ways:

Capability: They’re looking for a particular function, capability, or feature that your company has but they don’t. Here are some examples:

• Apple and Siri (2010) – Apple acquired Siri to bring voice-assistant technology to its products, filling a gap in its product capabilities and paving the way for what became a staple feature in iPhones​. (source)

• Cisco and Duo Security (2018) – Cisco acquired Duo Security for $2.35 billion to add multi-factor authentication capabilities to its existing cybersecurity portfolio, an area it had limited expertise in, thus strengthening its security offerings for enterprise customers​ (source)

• Microsoft and GitHub (2018) – Microsoft acquired GitHub to bolster its developer services, gaining expertise and community that Microsoft’s developer tools didn’t fully support. (source)

If the buyer is considering acquiring a capability they had planned to develop internally, they may value the business in comparison to the time and resources it would have taken to build it themselves.

Scale: Direct competitors often look to an acquisition to expand their distribution, reach, or overall scale. However, for this type of acquisition to be appealing, the target company must be large enough to make a measurable impact for the acquirer.

For example, EntryLevel’s 300,000+ user database wouldn’t significantly affect Coursera’s existing user base of 155 million, making it less attractive for scale-based acquisition.

Here are examples of scale acquisitions:

• Facebook and Instagram (2012) – Facebook acquired Instagram for $1 billion, adding Instagram’s fast-growing user base to expand its social media reach among younger demographics and strengthen its mobile presence. (source)

• Intuit and Mailchimp (2021) – Intuit acquired Mailchimp for $12 billion to reach a new market of small businesses that use Mailchimp’s marketing services, complementing Intuit’s existing customer management and financial software scale​. (source)

Businesses may also make acquisitions for the standalone value of the target company, allowing it to operate independently under new ownership. The buyer might also evaluate the synergies they can bring to the acquired business—such as expanding its distribution network rather than the reverse.

A significant consideration is the potential for 'dis-synergies'—where the acquisition could be costly to integrate or negatively impact reputation. These risks are thoroughly assessed before the transaction.

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Adjacent Players

In this context, an adjacent player is a company in a related, but not directly competing, industry. They often serve a similar customer base or offer complementary products or services.

An acquisition by an adjacent player might allow them to enter a new market or create synergies with their existing offerings, similar to the motivations of a direct competitor. However, the key difference here is that you may need to be a bit more creative with how the business is presented for the sale.

Here are some examples:

• Amazon and Whole Foods (2017) – Amazon’s acquisition of Whole Foods enabled it to enter the grocery market with a network of physical stores, complementing its online retail presence and enhancing its logistics network​. (source)

• Salesforce and Slack (2020) – Salesforce acquired Slack for $27.7 billion to offer a communication tool that complements its CRM services, enabling integrated workflow solutions for businesses that use Salesforce for customer management​. (source)

• Microsoft and LinkedIn (2016) – Microsoft’s acquisition of LinkedIn allowed it to enter the professional networking space, adding a massive user base of professionals to its productivity software ecosystem. (source)

I found this pretty insightful so I hope this helps you as much as it did me.

P.S If you’re working on something in the future or work or learning space - feel free to reach out to Ariel via Linkedin.

Cheers,

Ajay