Dan Pries is a serial entrepreneur who currently heads OptivityX, a company not much older than this article. Over multiple startups he has learned to recognize the signs that it’s time to move on from the ventures he’s founded.
“I'm good at figuring out what the company is and getting it going and getting to some sort of scale — really in startup or entrepreneurial phase,” Pries says. “Once things start getting where we need lots of processes and procedures and systems, it starts becoming sort of drudgery to me. It's not stuff that I have a great interest in doing. So, at that point, it's really no longer playing to my strengths and my interests.”
Because of Pries’ disposition, he’s always got lists of ideas and business opportunities that he'd like to pursue.
“When it gets to the point where I sort of can't resist that ‘shiny new thing,’ and I know that because I'm thinking about it and thinking about it and I want to do it, that is another indication that it's time to go.”
Smart Business Dealmakers spoke with Pries about moving on: selling the business and what he’s learned about the differences in the approach of different types of buyers.
The 80/20 interests
ProPoint Graphics, a graphic design firm he founded in 2002 and sold in 2017, was a mostly financial transaction — a management buyout among minority partners and an outside buyer who threw some financial weight behind the deal. The Deal Rack, an internet apparel retailer launched in 2010 and sold in April, involved a strategic buyer. Pries says they were two very different deals with parties concerned with very different data.
“The ProPoint buyers were much more interested in financials than the Deal Rack buyer,” he says. “That's not to say that the Deal Rack buyer was not interested in financials — they mattered; they weren't looking to burn money. But there wasn't much focus with ProPoint beyond the financials.
“The ProPoint Financial buyer was 80 percent financial and 20 percent strategic (during the diligence process). The Deal Rack buyer was flipped — it was 80 percent strategic — what’s the product that they're buying and will it fit within their corporate strategy as they need it to?”
Among the things Pries says he learned from the two deals is that strategic buyers are making more of a binary decision compared to a financial buyer. That created a difference in how the two deals felt.
“I think that you can sort of relax to a greater extent with a strategic because you either check the box or you don't,” he says. “With the financial, if you've got any sort of aberration of financial performance that’s discovered during diligence, there's more uncertainty. It's more quantitative and objective from the point of view of financial buyers.
“They want to know if you’re going to generate the return they need or not, given the purchase price. But with the strategic it's like, ‘Do you have these assets? Do they work? What's actually under the hood?’ And if it's not there by the time of diligence, you're not going to be able to get it there.”
A lesson in preparation
When Pries went through the two deals, he didn't have an appreciation for the differences and didn't prepare differently for either.
“Now, having done these two different scenarios, I would go into it differently with a different expectation,” he says. “It was a tremendous learning experience.”
Knowing now that a strategic buyer is almost wholly concerned with whether the acquisition target fits into its strategy, Pries says his approach would be to try to understand what the buyer is actually planning.
“If we have some sense of how the strategic is going to use the company in their plans, I can try to put together a case for why we do, in fact, fit that, and volunteer information that can substantiate that claim more readily,” he says.
With a financial buyer, Pries’ experience is that they’re more or less looking to confirm that everything the company being acquired has said is true, so his focus would be on holding the company’s financial and sales performances steady through the deal process.
Pries also learned about the difference in time between the two buyers. He says ProPoint spent a few months in pre-diligence focusing on the management transition, and then another month and a half just negotiating the purchase agreement.
With Deal Rack’s strategic buyer, it was a 30-day close.
“We had four bidders (for Deal Rack) and because of that we had the luxury of choice,” Pries says. “One of the criteria I had was speed. I was talking with a friend of mine who has been in finance his whole professional life — 20 years or so — and I was like, ‘Hey, a 30-day close!’ He says to me, ‘Is that fast?’ I said, ‘I thought it was fast.’ He said, ‘It's not fast in my world,’ and he's doing much bigger deals. From my perspective it was fast. From his perspective, it wasn't.”