Over the course of a few months, our Managing Partner, Colby McKenzie posted some pearls of wisdom on corporate development. McKenzie has managed corporate development as an M&A attorney, venture-backed founder and public company executive and took a holistic view in providing some insights. We have compiled all of the posts into this blog. Hope you enjoy.
Transition Point Law has a practice group dedicated to corporate development, both integrated (i.e. part of the team) and as outside counsel. Let us know how we can help.
#1
Let me say this bluntly, if you are executing a corp dev strategy JUST BECAUSE your investors told you to grow inorganically, or JUST BECAUSE it would be really cool to announce that partnership or JUST BECAUSE someone called and offered you their business…you are doing it very wrong.
The “just because” strategy has killed many companies.
M&A, Joint Ventures, Partnerships, are all expensive. They take time away from other growth activities. They cost provider fees (ours included 😁 ). They occupy precious mental capacity. So you better have a real strategy and stick to it.
In every significant corporate development activity that I have ever participated in, there have been:
> Early scoping strategies (i.e. what exactly are we looking for)
> Detailed deal specific memos and underwriting
> Excruciatingly long conversations among management/investors allowing opposing views to surface and the devil’s advocate to play out his/her position.
> Preparation and specific written promises from the internal implementation team
Like with most things in business…Don’t do it JUST BECAUSE. Do it right and reap the immense benefits of inorganic growth.
#2
Asset acquisitions are easier to integrate than full company acquisitions. When you are buying a product, some code, a contract/customer or specific tangible assets:
📢 they do not complain about their new role
📢 the integration is of things, not people, which is typically far easier
📢 the acquisitions are specific and defined and therefore are banking on a lot less “aggregated synergy” to drive the deal.
So there is no need to always swing for the fence with big acquisitions, grab the small stuff to accelerate your roadmap and business plan. Take the wins. Pile them up.
#3
So you have bought or built your platform business. Is it time to bolt on or tuck in or do a little bolting and tucking…
A tuck-in acquisition is a strategic move where a larger company acquires a smaller company and integrates it into its existing business structure. The goal – integrate and drive synergy.
Bolt-on acquisitions involve the acquisition of a separate business entity that can continue to operate (relatively) independent of the acquiring company. The goal – leverage the unique strengths and capabilities of the target company to achieve growth or diversification.
There is no right or wrong strategy. It often comes down to stage/status of the platform company and specifics of the target. But from my personal experiences, I always use three questions to drive strategy clarity:
1. Can I successfully integrate the target business and its people into the broader operations? Even if I can, should I or will it be a detrimental distraction?
2. Do I need deep integrated synergies to make this acquisition make sense?
3. If I bolt on can I later integrate without issue?
#4
As I am now several posts into my corp dev barrage, I will do a personal one to prove I have walked the walk and am not just another AI prompt regurgitation.
Here was mine and Jeremy Jacobs playbook for how we rolled up the digital signage business in the alternative health space with Enlighten through some serious corporate development efforts.
1. Spin out a cannabis pilot from parent business and secure venture financing for the spun out business. Continue to leverage infrastructure and technology from parent to scale faster and more efficient than anyone else in the industry.
2. Acquire the only meaningful competitor in our initial market of Colorado via asset acquisition of all of their customer contracts (including customers in a new related sector).
3. Buy the customer contracts and related assets off of a distressed player in our priority expansion market of California. Gaining a foothold in a hyper local market.
4. With our national presence and market leading position well solidified, circle back and tuck in the #2 player (we were #3 at the time) in the highly coveted CA market.
5. Integrate, further execute, exit within 5yr. From the start to a strategic that saw value in buying rather than having to undergo the heavy lift of building what we executed.
#5
Common fact pattern: You just raised a $20m Series A and investors are expecting at least 100% year over year growth for the next two years. The idea of inorganic growth is appealing.
Realities:
– You are not in a spot to make large all cash acquisitions and your investors are probably not open to significant dilution in an acquisition
– You likely don’t have a dedicated corp dev person and may not even know his to go about it.
– You have momentum from a sizable raise, a company that people want to be in or around and need to keep that momentum via rapid growth.
Here is what I am doing immediately:
– stack ranking inorganic growth categories (product/feature, new distribution, competitor/consolidation, etc) that will best support my growth objectives.
– stack ranking best targets within those top categories
– eliminating any that are too big to tackle at this stage
– picking up the phone and calling the target founder; not to directly talk about acquiring them (don’t be that guy/gal) but to socialize what a “deep partnership” might look like.
You don’t have to be an expert to get interesting conversations going.
#6
When you are acquiring a company and equity is part of the purchase price consideration, this is how I would work to establish valuations:
Do Not:
Our last funding round was X so we are worth X (or Y). I do not think that funding rounds are necessarily a good barometer for acquisition valuations.
Dive a bit deeper and make it a shared exercise between the parties to establish valuations.
Do:
Focus on relative valuation. Buyer can be worth $100m and Seller $50m or Buyer $10m and Seller $5m and the equity consideration as a percentage of acquirer will be the exact same. Valuations are all relative in acquisitions.
I have often found it easiest (especially in competitor acquisitions) to establish some key metrics (revenue, gross profit, profit, ARR, customer count, whatever) and utilize those metrics to help establish quantitative relative value and then adjust up or down based on softer matters (tech stack, customer concentration, etc)
Then put the actual formula that is being used to establish the relative value directly into the term sheet.
#7
We often talk about data rooms and M&A prep. But that prep has to be digested by the CEO.
Simply put, the CEO has to know it’s business cold.
In 2019, I was looking at two businesses and determined to buy one of them.
On paper, one was arguably a better business. But in conversations the CEO clearly didn’t have a handle on the business. Including fully realizing that he was negotiating on behalf of an insolvent business.
The other business was flawed, but the CEO knew the business cold and projected confidence in that knowledge and the understanding of those flaws.
Easy decision in the end…know your s###.
#8 (April 2025)
There have been 11 startup sales of more than $1 billion announced so far this year, cumulatively worth $54.5 billion* — a total that easily surpasses previous records for comparable quarterly totals, but don’t believe for a second that big dollar deals are the only needle movers.
Big dollar acquisitions get the buzz, but it’s best to compare in relative terms to your company size. I have seen acquisitions in the 5-15% of buyer enterprise value become absolute home runs.
If you have dry powder, no matter the amount, and you II have a corporate development strategy, get to acquiring.
*data compiled by CBInsight.com
#9
I see a million posts on here about rollups. But rarely do they mention that rollups are hard to execute. If you are going to take a platform and do a number of add-ons to execute an industry rollup, you really need an acquisition playbook.
Yes, the playbook can have a bit of flexibility in it so you can adjust to each deal and the dynamics involved. However, if every deal is bespoke, that comes with custom legal docs ($$$), a lot of brain damage on the initial gating diligence and a whole lot more effort.
The more that you can standardize the acquisition structure and process, the faster and cheaper you can execute your rollup.
#10
A lot of LI posts are concept based, so as my 10/10th post on corp dev. I wanted to post an actual dialogue to drive home some of the concepts discussed. Hope its helpful to someone out there negotiating an exit or acquisition.
Alex (CEO of AcquireTech, venture-backed acquirer): We’ve had some productive discussions about how TSH could fit into our ecosystem. Based on our due diligence, we’re prepared to make an offer of $85 million, 60% of which would be in AcquireTech stock.
Jordan (CEO of Train-Stops-Here, venture-backed seller): I have to be candid – that’s significantly below our expectations. Our last funding round valued us at $120 million, and we’ve grown our ARR by 60% since then.
A: I understand your position. However, multiples for SaaS companies have compressed since your last funding round. Companies in your vertical are trading at 5-6x ARR right now, not the >10x they were trading at when you raised.
J: That’s true, but we’re growing much faster than most comps you’re referencing. We believe we will expand ARR by 40% this year.
A: Fair points about your growth rate and margins. But we need to consider the capital we’ll need to invest post-acquisition to realize the full potential. Realistically, we have to look at this through our investment lens as well – at $120 million, our projected return on acquisition drops below our threshold.
J: I get that, but your offer doesn’t account for the strategic value we bring. Your enterprise sales team could immediately cross-sell our product to your existing customer base – that’s worth at least $20 million in incremental revenue in year one alone.
A: The synergy potential is definitely there, but there’s execution risk in capturing it. What if we structure this with an earnout? Say $85 million upfront plus another $15 million tied to revenue milestones over the next two years?
J: Earnouts are challenging for us. Our investors would much prefer certainty. How do we bridge the gap?
A: Let me approach this differently – To bridge the gap, let’s look at our companies’ relative valuations since over half of your consideration is our stock.
You guys are doing about $14.1m in ARR with a $300,000 monthly burn and <$1m in the bank and we valued that at $85 million (6x). We love your tech, but with the new AI tools, number of similar competitors and lack of IP protection, we did not assess any extra value to the IP.
We are doing $65m in ARR with similar burn and $75 million in the bank ($41m after purchasing you). To be fair, even given the fact that we are significantly larger and can justify a larger multiple, we applied the same 6x multiple, which brings our value to $350,000,000 and then added $100 million for the deep tech and protectable IP that we hold. Tech that we think will greatly enhance your stack and your business. That brings us to the $450 million valuation we used in arriving at the stock comp for this deal. We also expect to IPO within 18mo, but don’t want to apply a disproportionate liquidity premium for a future unknown.
J: I appreciate that detail and reframing. So where does that leave us?
A: You want $120 million and we are unwilling to offer any more cash or stock that we already have. If we are going to increase your valuation, its only appropriate to do same on our end, which means the amount of stock received per dollar will decrease. Obviously, the $34m cash consideration would become less than the 40% of the $120m as well.
J: I understand that it nets out relatively similar, but I think optically that could work. Our investors believe in the long-term upside and are fine holding equity in your company until IPO.
A: Great, I’ll work up a revised term sheet.
