Late Tuesday afternoon I attended the acquisition Q&A panel. The panelists represented a wide range of buyers and transactional styles. Moderator Frank Stiff presented an interesting initial question: what do you do when you receive information about a potential acquisition. Ditlev Bredahl of OnApp used a “mind map” that at each branch used a green, yellow or red light that would guide his decisions about whether an acquisition was feasible or not. Endurance used Cheval Capital to run interference on deals sorting through those deals that were appropriate for Endurance and those that were not. Since Softlayer is a technology company, Mike Jones, Softlayer’s CFO, said that the technology must be right. So Softlayer runs all acquisitions through a technology feasibility program. Hillary Stiff from Cheval pointed out that really at base you need to understand what your motivations are for buying, and using that understanding to only evaluate those transactions that meet your criteria.
In answering the age old question, “how do you come up with the purchase price,” Sumeet Sabharwal of Navisite pointed out that regardless of the amount of the purchase price, it’s important to set out, and provide, purchase price expectations up front. Ditlev echoed this point in saying that it doesn’t matter how you explain the purchase price: if it isn’t what the seller expected to get, the deal won’t move forward no matter how it’s explained. In my opinion, discussions about a purchase price are a key way of evaluating whether a transaction will ultimately move forward. Buyers who are cagey about a purchase price, or sellers who don’t have a realistic idea in mind, telegraph that they are not serious about a transaction. Failure to discuss hard figures early in a transaction should throw up a red flag for either side.
Joe identified one big issue presented in any transaction: leave your ego at the door. All of the panelists agreed that this is a crucial aspect to any transaction. It’s important not to get emotionally invested in a transaction, and to carry out negotiations in a friendly and respectful manner. Of the transactions I’ve handled that have gone south, the vast majority have done so because the personalities parties have somehow begun to conflict. As a result, small details that are generally capable of negotiation erupt into “deal breakers.” In most cases, if the parties are able to step back, and take a moment to look at their positions in a pragmatic way, the dispute goes away. However, if one of the parties makes the dispute into a personal issue, the transaction is typically doomed.
About David Snead
David Snead is a lawyer whose practice is focused on internet infrastructure providers. In his eleven years in this practice, he has represented clients including multinationals, middle tier hosting companies, and two guys, a server, a T-1 and a huge MasterCard balance.
A long-time WHIR contributor, David Snead is the Web hosting business's best-known legal expert. Through his WHIR blog, he offers a credible legal perspective on both specific actions in the Web hosting business and general developments in legislation.
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