How Brainstorming a Shortlist of Potential Acquirers Can Pay Off

When David Perry started his video game company, Gaikai, he thought about all the companies that may want to buy it one day. In essence he was creating a shortlist of potential acquirers. And also creating a quick way to find a good fit.

Now typically when you think of startups, one word comes to mind: growth. So why would a business without any revenue or employees be thinking about potential acquirers so early? 

For Perry this is just “down-the track” thinking at work. Rather than waiting for the right opportunity, he wanted to drive the process.

The Strategy

Later when Perry was interviewed about Sony’s $380 million acquisition of Gaikai, he described his philosophy by using a moving train as an analogy. 

Think about a train full of people representing an industry, he explained. Most people are comfortably inside the train watching the countryside go by. There are some people scrambling behind the train, hoping to jump on.

Then there are a select few people who are obsessing over where the train is going and are constantly thinking about the upcoming stops along their journey. Perry described himself as one of the people thinking about where the train is going next, so it only made sense to him to have a list of potential acquirers from day one. 

Sony was in the bullseye of Perry’s dartboard of companies to sell to. So when his partner suggested they name their company Gaikai, a Japanese word that roughly translates to “open sea,” Perry agreed. 

He knew it would be the perfect fit for what he had in mind. He also knew he had an opportunity not just to create something unique but to build a connection to his target acquirer.

And while the word gaikai is hard for the average English speaker to pronounce, Perry knew the name would be irresistible to Sony. 

More Than Just A Name

Perry and his partners went further and named other parts of their product line with Japanese words. They also designed the company for the global gaming market, not just for American customers. It was a unique tactic that differed from the habits of video game makers at the time. 

Years later, when Perry was ready to sell Gaikai, he approached all the big video game makers about buying his company. Unsurprisingly, Sony was the most enthusiastic. They were thrilled to see the extent to which Perry and his partners had gone to make Gaikai fit Sony’s culture. 

The Takeaway

Visualizing the shortlist of potential acquirers when you’re making key decisions in forming your company is an excellent way to vet your next move.

Imagining how your potential acquirers would react to hear how you are thinking of evolving your company can inspire a more strategic lens through which to make big bets. 

Whether you are looking to sell soon or are years away from selling, the process of developing a shortlist of tomorrow’s potential acquirers will help you make better decisions today.


Want to learn more? Speak with us about how we can help you think through the strategy of selling your company some day.

Don’t Mess With The Gorilla Who Wants To Buy Your Company

A tale of why you shouldn’t over-play your hand when approached by someone who wants to buy your company. Big companies with lots of cash also have resolve to walk away.

On June 1, 2011, both Floyd’s Coffee Shops in Portland, Oregon were busier than usual. The regulars were elbowed out of the way by new customers visiting the store for the first time to redeem their coupon and get $10 worth of coffee for $3. 

This tempting offer was made because Floyd’s had been picked as the first-ever Google Offers “deal.” At the time, Google Offers was the company’s first baby step into the world of “social buying” style promotions where a special, limited time offer is made by a business hoping that the deal will spread virally and thereby introduce a new legion of customers to their business. 

Google, of course, did not invent the deal-of-the-day category; they were goaded into it after their generous $6 billion dollar offer to buy Groupon was turned down. 

Now Groupon is starting to feel the pinch after thumbing their nose at one of the world’s most valuable companies. According to compete.com, Groupon’s traffic went from 33.7 million unique visitors in June 2011 to just 18.3 million unique visitors in January 2012. That’s a drop of almost half inside less than a year. Not surprisingly, Groupon’s stock is also down around 25% since its IPO last year. 

Over-playing your hand 

The moral of the story is to be careful not to over-play your hand when being approached by someone who wants to buy your company. Acquirers usually have deep pockets and, while you may think your business is unique, never underestimate the resolve of a big company with lots of cash. 

Typically when they make the decision to walk away from the negotiation table they do not leave empty-handed. They come away with new-found insight on how you run your business, what works, and what flops; so they have an enormous head start to launch a competitive company. 

“They do have an alternative to buying you: they can simply compete with you.” 

And it doesn’t just happen in Silicon Valley. Take a hypothetical example of a home security company generating $500,000 per year in profit (before tax) installing and monitoring home alarms. One day a big alarm company comes along and says they want to buy the business and they’re willing to pay four times pre tax profit. The alarm company owner turns up his nose and demands six times earnings. 

Now the suitor has a choice. They can try and negotiate with the owner, but that would undermine the economics of the model they’ve used to buy hundreds of similar alarm companies across the country, or they can simply hire someone to start an office to compete with him. 

Let’s say they pick door number two and hire a young, aggressive manager. They guarantee her $200,000 a year in the first 12 months on the job while she is building her business. You have not only lost the opportunity to sell your business; you’re now competing against a young, motivated rival with a parent company who has an extra $1,800,000 ($2,000,000 withdrawn offer minus the $200,000/ year salary for their manager) that they didn’t use to buy you and they’re putting it towards helping your new competitor build her business. 

If you’re lucky enough to get approached by a big company who wants to buy yours, remember that they are usually not choosing between buying you or buying your competitor. They are often choosing between buying you or setting up shop to compete with you. 

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