Monday, September 21, 2009

Do and Don'ts of Online Acquisitions

I have been involved with online acquisitions with a major media company for the past 4 years, and there are many things that I have seen sellers do that frankly make our process much more difficult than it has to.

The source of many of these difficulties results from the nature of the business.  The search engine do not judge the maturity of the parent company that runs these websites.   Because of the low barriers of entry, a guy who works out of his garage could potentially produce a website that is just as valuable as what a larger corporation could do.  This characteristic in the industry results in a lot of unsophisticated sellers.  Here are some highlights that could make the process easier for everyone.

The more information you provide, the quicker we're able to get to an accurate offer.  I have noticed many sellers "suspicious" of companies interested in acquiring them.  This is especially true with sellers who are not working with a banker.  In my lifetime with online acquisitions I have come across many sellers unwilling to give us actual data but instead giving us vague "estimates" or "ballpark" data points.  This will only result in "ballpark" or "estimated" offers.

There is a fear that the acquisition company is using a potential acquisition as a lure to extract competitive information from the seller, then leaving them out to dry.  Although there may be some validity in this mindset for keywords in a seller's PPC (paid per click) campaigns, the rest is just a bunch of hogwash.  Banner advertisements and subscription revenue are not rocket science.

The actual data will be required anyways during the due diligence process.  You can save everyone a lot of useless cycles and time by just providing all the data upfront.  If you are not fully comfortable sharing your data, ask for a NDA.  Most respectable companies will have a standard boilerplate NDA they can offer you.

Now that you are on board, what sort of data should you provide to a potential buyer?

Traffic.  The most important data point to a successful offer would be for a buyer to understand both the source and the demographic of the visitors coming to your site.  Google Analytics is a good, independent, third party analytic software.  This is a free service offered by Google.  Because Google Analytics only uses pixel tracking, they tend to provide a much more accurate picture.  In addition, you can give anyone with Gmail temporary analytic access (including the company interesting in acquiring your site).

Buyers of your site will be interested in the following areas:
  1. Traffic trend.  Is your site gaining or loosing visitors month-over-month?
  2. Keywords.  What keywords are driving traffic to your site?
  3. Landing pages.  Where are visitors going when they arrive on your site?
An understanding of how much you spend on the site is important as well, and will provide good context on how much resources the company will need to devote to the media post acquisition.

Have someone familiar with internet media represent you.  You may be tempted to hire on your buddy who's also an attorney, or have your lifelong family/business attorney help you with this process.  Unless they are very familiar with online media space, my recommendation would be to find someone else.  Many times I have encountered attorneys who just do not understand online media and make demands on the behalf of their client that just plan don't make sense.  This can unnecessarily drag on the acquisition process.

Here are the main legal concerns of most companies looking to acquire your site:
  1. We don't want you to go out the next day and start a new site directly competing with us.
  2. We want to make sure you own the content on the site.
  3. We want to make sure you own the site.
  4. We want to make sure as of the date of purchase, no one is trying to sue you.
That's really it. 

No company will sign on to buy a site without first looking "under the hood". Think about the acquisition process like a used car purchase.  The buyer will want to first test drive the car (data collection), then take it to a mechanic to get it thoroughly checked out (due diligence) to make sure everything is in working order.  Lastly, they would want to know that you own the car and have both title and registration to the vehicle (legal).

Lastly, if you're interested in having your site acquired, please have some sort of contact info either on your site or Whois registration.

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