Cybersecurity Company
A cybersecurity company founder shares thoughts on M&A process
The founder of a cybersecurity company that raised roughly $30 million recently shared his thoughts on the M&A process. He stated that his board had not started thinking about a potential M&A process, but would consider it when they were in the mood.
According to Itay Sagie, a strategic adviser to tech companies, many boards approach M&A as a fallback plan in case growth slows, cash tightens, or strategic options narrow. However, by then, the company's leverage may already be gone.
Signals to consider selling
There are several signals that a board should consider when thinking about selling a company.
One signal is when everything is going exceptionally well, with rapid revenue growth, happy customers, strong retention, and an excited leadership team. At this point, companies often command their highest valuations, and strategic acquirers pay premiums for momentum.
Founder energy and buyer interest
Another signal is when the founder begins losing energy, after a decade or more of building a company. This does not automatically mean the company should be sold, but rather that the board should consider the founder's personal objectives and how they may impact the company's performance.
A third signal occurs when buyers begin calling, which can contain valuable information about the company's strategic position. Repeated inbound interest may signal that the company occupies a more valuable position than management realizes.
Weakest reason to sell
Ironically, the situation that most often triggers discussions about selling may be the weakest reason to pursue it. When growth slows, competitors appear stronger, or cash reserves begin shrinking, boards frequently turn their attention toward M&A. However, buyers can see the same challenges, and valuations typically reflect that reality.
Role of the board
The role of a board is to actively avoid inertia and continuously evaluate whether selling, scaling, pivoting, or remaining independent creates the most value for shareholders. The best time to have that conversation is usually before circumstances force it. As Itay Sagie notes, many boards begin thinking about selling precisely when they should be thinking about reinventing.
The strongest exits often begin when nobody feels urgency to sell at all, and the company is operating from a position of maximum strength.
