Despite all the hype about record IPOs, mega-billion-dollar M&A transactions and rapid growth of SPACs, the majority of startups will still exit via small deals. Over 30 years of experience in M&A, including at White & Case, Barclays, and Ascento Capital, have shown me too many startups not ready for a sale or merger. This article will give you specific advice on how to prepare your startup to M&A.It is important to aim for a billion-dollar sale, a successful IPO, or a SPAC deal. However, it is more practical to prepare your startup to handle a smaller transaction.Global M&A reached record levels in the second quarter, with $1.5 trillion in total deals. However, smaller transactions far outnumber mega-billion-dollar deals. In the United States, there were 16,672 deals during the year ending June 31. However, only 583 of those transactions, which is 3%, were worth more than a million dollars (FactSet). Although the IPO market is now healthy, M&A still accounts for 88% of exits. According to CB Insights Q2-2021 State of Venture Report, there have been 503 IPOs so far this year and 5,203 deals. The rate of new SPAC issuances dropped by almost 90% after the SEC announced that it was reviewing new guidance for SPAC IPOs in April.It is important to aim for a billion-dollar sale, a successful IPO, or a SPAC deal. However, it is more practical to prepare your startup to handle a smaller transaction.These are some tips to help you prepare your startup for an M&A sale:Monitor M&A in your sectorCreate an alert in Google News to be notified of M&A activity within your sector. If your startup falls under the IoT subsector search for IoT Acqui. This will bring up news stories about acquisitions in this space. You can save the search to be able to go to Google News regularly. You can also track your closest competitors using Google News, especially to see who's selling their company.Make a list of potential acquirersMake a list of companies that are most likely to purchase your startup. The list should include both domestic and foreign companies, non-tech businesses, and portfolio companies of private equity firms as well as VC-backed startups. You can also track these potential acquirers via Google News.You might consider pursuing a parallel track.When you raise capital, consider approaching the top 10 most likely acquirers. Your board of directors will have more options if your startup receives both M&A offers as well as VC term sheets simultaneously. VCs will be impressed by the M&A activity in the sub-sectors of your startup and the 10 most likely buyers. This will increase their chances of funding you.
