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Attracting Outside Investors
an investment banker or by initiating their own search, but the
idea is to find a friendly 800-pound gorilla they know and like
before an 800-pounder they don’t know and don’t like arrives on
the block. The young company will be looking for the following:
• the possibility of making a friendly deal, with a better
price for the stock held by the owners than might be
available later, in more challenging times,
• jobs for the company’s employees, including the CEO if
desired, which might not be so easy later with an
unfriendly buyer, and
• the ability to pick the time to look for a deal, when the
company looks its best, things are on an up trend, there’s
cash in the bank, and it isn’t facing any immediate threat.
By contrast, the potential acquirer will have a different list,
which might include the following:
• maintaining or increasing a growth rate that stockholders
have come to expect, particularly if the acquisition is in a
growth area expected to be “hot” very soon,
• protecting itself from inroads into its market by younger
companies with the kind of innovative products it lacks,
• putting excess plant capacity to work by building prod-
ucts for the young company at favorable incremental cost
because it’s already paying for the capacity,
• putting excess cash to work earning a better long-term
return than it can earn sitting in the bank, or
• developing complementary products (e.g., lawn tools for
a lawnmower company or computer printers for a com-
puter company).
There are some distinct differences in an acquisition under
these circumstances and the kind of deal that might be made
with a strategic investor. For example, a company that acquires
a venture rather than investing in it early on doesn’t bear the
added cost and risk of nurturing the young company to self-suf-
ficiency. For coming late to the party, however, it will likely pay