Things Fall Apart, Part II

This is the second in a series using the blog post describing the recent breakdown of Backblaze's M&A process to explore common mistakes made in M&A for mid-market companies.

At this point in the story, the Backblaze team is thinking about how to reach out to potential buyers.

Spamming every person at every company was not an option as we wanted this process to remain confidential.

Fortunately for sellers, every legitimate potential strategic buyer has dedicated resources for M&A.  Usually it's a primary function of the corporate development group, although sometimes it's business development or finance (under the CFO). 

If there are no obvious people to contact at a potential buyer such as a CFO or VP of Corp Dev, the company is likely too small to be a credible buyer.  So they shouldn't be contacted in the first place.

On a related note, sometimes potential sellers feel there is stigma around being "shopped" to potential buyers.  This is a fallacy.  If a company is growing and profitable like Backblaze, having exploratory talks with buyers will not create stigma.  Anyone with experience knows that high-growth small companies often sell, and few never even consider it.  Nobody will fault a company for wanting to know its options.  If the company is healthy--that is, growing and profitable--like Backblaze, the company's health will speak for itself.  

This fear of being labeled "for sale" results from a common misunderstanding.  It stems from the fact that companies that are being shopped can be stigmatized...but it's not because they are being shopped.  It's because they are struggling.  Often struggling companies (particularly those backed by venture capital) often have no choice but to sell. 

On the other hand, look at 3PAR.  It’s being shopped to Dell and HP, but that's certainly not a reflection of struggles.  Did Facebook get stigmatized back when Yahoo! and others were looking at buying it for 1b?  No. 

Almost every private company (not to mention, by definition, every public company) is always "for sale" for the right price.   When shareholders become interested in exploring an exit, they are best served by talking to as many credible buyers possible.  Maximizing buyer competition maximizes seller value.