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Advice for Entrepreneurs, Business Valuation, Pre-sale Planning, Selling a Business

Partnering with an eye toward exit strategy

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Ok, so you have “partners” for your business and of course like most partners they are more interested in what you can do for them than how to jointly grow your businesses.  You may even wonder if it is worth the effort, and in fact many non-revenue generating relationships may not be.  But as in many cases, when thinking about your partnerships, think long term…think about your exit.

Partnering is critical to exit planning because often the best potential buyers are companies that know you, are in the same market space (or tangential), and can see the potential for the growth of your business.  These potential suitors can be used to create competitive friction during the selling process and creating competitive friction is one of the key elements of achieving exceptional results.

To create competitive friction there must be more than a single strategic buyer willing to bid for an asset. Multiple strategic bidders are often generated when there is scarcity value of IP or domain expertise.  Our experience shows that one of the most likely sources of strategic buyers is the company’s own partners.

Companies planning to sell need to think about creating partnerships with target companies often years before it is time to sell; but how do you get the attention of strategic partners? Partnering with an eye toward an exit strategy is often different than traditional partnering in one key way.  When traditionally looking for partners, one is often trying to find companies that will bring them business.  When partnering for a strategic exit, you have to ask yourself; how can I help the partner to generate revenue?

Ideally this relationship is symbiotic and both companies grow, but it is the reversal of thinking that will make a good partner a targeted buyer.  The best way to get the attention of a major partner is to show how you can help them.  Sometimes I hear, “they never call me with a lead; I am the one that calls when I have a lead for them.”  This is not uncommon.  While it may seem unfair, remember the bigger picture.  It is what you can do for them that will get you bought.

Who should you partner with?  Look for synergies: product, market, technical and commercial.  Look within your primary market and in markets or product spaces that may be tangential and represent expansion for the partner.  Regardless, there must be obvious synergy, recognized and agreed by both parties.

Start small.  Join the partner programs; bring them a lead. In short, work together.  This is a long term commitment, not a sprint.  The best partnerships are those built on joint customers.  For larger strategic target partners, don’t expect the president of a billion dollar multinational is going to recognize your contribution immediately.  Help win a big deal and he will hear about it.

Three companies I have recently worked with have all been successful in deploying this strategy.   In all 3 cases, these companies had a conscious multi-year effort to develop their partner relationships, 2 of which led to sales to a strategic partner, both at strategic valuations.  The 3rd sold to a company similar to themselves, but because they had developed multiple partnerships, they had a broader spectrum of potential buyers (basically the partners and their partners) and ultimately received three comparable offers from very different types of buyers, enabling them to choose the future direction they wanted to follow for themselves and their employees.

If you would like to read more about the applicability of partnering to your exit plan, you might be interested in reading more in our report on “How Have You Matured Your Business Lately”.