Nantucket Nectars: the Exit (FD, Tuesday, Week 12)
founders-dilemmasyear-twoBest class guests/case protagonists ever...
Takeaways from negotiation:
-- Open with "congratulations" (or something positive).
-- If you are an acquirer, don't ever be a bidder in an auction. Figure out creative/non-financial/hard to value terms, ideally ones that don't do crazy things to the other party's incentives. Do anything you can to make the conversation about something other than price.
-- Multiple bidders => higher valuation (duh)
-- In M&A, there are some features of the buyer that will always shape the deal/it's not just about price.
Examples: Pepsi can't credibly claim that they won't change a company's "entrepreneurial culture" upon acquisition. Ocean Spray (a co-op) can't offer acquiree's founders a piece of the upside --- it's a coop; there's no publicly-traded equity. Triarc can't credibly claim that they'll tolerate gradual growth or unprofitability --- it's a PE shop; they want to exit with a double-digit IRR in 5-8 years.
The aftermath:
-- Get a fabulous lawyer when you exit. Tom & Tom missed earnout milestones, regretted selling to Ocean Spray within six months of closing, and still got paid because they had good lawyers.
"We were ready to take the next step (getting liquidity), but not ready to give up the company." -- Tom First
Epilogue: Pepsi control sounded great after six months working for Ocean Spray.
"Our abilities were a subset of our desires." -- Tom Scott
On entrepreneurs at big companies (Ocean Spray vs. Pepsi):
"If you can't get the things that you need as a human, just take the money." -- Tom Scott
"We got a call from Triarc, from Nelson Peltz. And he said we could meet anywhere in the world as long as it was within five miles of a helipad...I just remember the whole thing feeling dirty." -- Tom First, on the possibility of selling Nantucket Nectars to PE