turning down an acquisition offer

Turning down an acquisition offer [PMP #287]

In December 2022, I was approached by a company interested in acquiring the Pipedrive consulting arm of my business. The acquisition didn’t proceed but it was an interesting process that forced me to think about the value of my business and my goals for the future. In this post, I’d like to talk about how I analysed the offer that I received and how I’m looking back on everything today.

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Now let me start by being very clear; I never sought out an acquisition. The acquiring company approached me and I simply wanted to explore the opportunity to see if it made sense to sell a portion of my business (everyone has their number, right?).

The acquisition discussion began in December 2022. I met with the CEO of the acquiring company who was interested in learning about my existing business and revenue numbers.

I’m in an interesting situation as the business still very much depends on me. While I’ve made progress over the last few years to grow my team on the operations and fulfilment side; I am still the face of the company and manage all of the sales. To make my business more ‘sellable’ I would really need to replace myself so the business requires less of my input to operate on a day-to-day basis.

Still, what I do have is a healthy book of recurring commission that we get from Pipedrive for supporting our customers. This is what the acquiring company wanted to purchase.

I received an initial offer which came in at about 90% of what I would expect to make in commission and consulting revenue for the year. I turned this down as it didn’t make sense to me to let go of a profitable and growing business for less than a year's revenue. I also felt that the business was worth more taking into account the value I can offer by directing my YouTube videos to the new company and the assets I have like my online course. I presented my own valuation of what I thought the business was worth; not expecting them to accept the much higher valuation but for them to appreciate how I value the business.

At this point in time (early January 2023), the discussion was put on hold as the acquiring company was busy with another acquisition. And I took the opportunity to put my head down and grow my commission as much as possible.

In June 2023, I reached back out to the acquiring company and explained that I had grown my commission about 34% and asked if they wanted to revisit the conversation. We spoke, I shared my updated numbers and I felt like I was in a good position as I had demonstrated the growth potential of the business.

I then received another offer, a bit different to the one before:

  • The offer was for 90% of the value of the annual commission for 4 years paid out at the end of each year with a small immediate upfront payment.
  • I would need to work 20 hours a week for the acquiring company for 12 months to facilitate the transition.
  • There was potential for the payout to be more based on growing the commission and professional services generated in the first 2 years.

The main selling point of this offer was that I could get 90% of what I would have made but I wouldn’t have to do any work in years 2-4.

I ultimately decided to turn down this offer for a few reasons:

  • The cash flow needed to be more upfront. By my calculations, I would have earned less through this acquisition in year 1 compared to keeping the business. In order to justify letting go of half my business, I would have needed more like 80% upfront so I can invest the money or do something with it.
  • The total valuation was still on the low side. Especially considering how the business is growing and what I expect to earn in the same 4-year timeframe. Simply put, the opportunity cost was too high and I felt I would be better off keeping the business.
  • I'm in a good situation; I really enjoy my business and being one of Pipedrive’s biggest and most well-known partners is a real asset that is hard to let go of. I've been consulting on Pipedrive since 2016 but in a lot of ways, I feel like I'm still just getting going.

It was really helpful talking to a few trustworthy friends and they agreed that the cash flow and the total valuation weren't that attractive. I communicated these points to the acquiring company and I explained what I would need the offer to look like for it to work for me. But ultimately we parted ways as they wouldn’t be able to give me what I wanted. And that’s actually fine. I really believe this was the best outcome.

Throughout the discussions, I experienced a range of thoughts and emotions.

There were times were I was really amped by the idea of an acquisition. I thought about what I could do with a large upfront payment and the opportunities it would give me to do other things. I thought about how my business and life would be different going forward and I really wanted to make the acquisition work.

When I ultimately turned down the offer and the conversation ended, I was actually pleased with the outcome (even though I was turning down a good opportunity). Going through this process made me realise the value of what I have and how much more valuable it is for me to keep this part of the business and grow it over the next few years.

And even though there were times when I thought I wanted the acquisition to work, it just goes to show that in life sometimes there’s no right or wrong path to take. If I accepted the acquisition, I would have been happy and I would have made that path work. By freeing my time who knows what other opportunities I could have explored?

But turning down the offer and staying on my current path is also a great option and I’m really glad this is the path I’ve gone down. In the last few months, I’ve started reselling Pipedrive subscriptions and this has helped me realise the potential future value of sticking with the path I’m on.

I hope by sharing my experience, this has been interesting to read. If you have any questions, please leave me a comment below. And if you think I made a mistake, please keep this to yourself 😝