A few months ago, I finally sold The Tab, the media business I co-founded at university. If you’re not familiar, The Tab is a network of local university news sites with 5–6 million monthly unique visitors.
I made the decision to sell in late 2018, nine years after we founded the company. During that period, we had received and spent $10 million in venture funding from the likes of Rupert Murdoch and Balderton Capital.
The Tab had a big audience, cultural significance among young Brits, seven figures of revenues and an amazing track record for starting young journalists’ careers. But, like so many other digital media companies of our era, we struggled with the really crucial bit: converting it all into a profit.
We spent most of our investment trying unsuccessfully to crack America but I pulled the plug on that in 2018. When I closed our New York office, I reflected on my failure to build a really big company (more on that another time) and decided it was time to find a safe, long-term home for the business.
This process wasn’t quick or smooth. I initially expected the whole thing to take six months, but it ended up taking 25. At the start, I decided I wouldn’t cut my hair until the deal was done. Here’s my before and after:
The final price tag was £750,000 (shareholders also got back £140,000 of remaining company cash). Overall 88% of the money invested was lost. In the words of one of my shareholders: “a miserable return”.
Clearly, I can’t tell you anything about building unicorns. But I can tell you about selling a company, especially from a difficult position. Here’s what I learned.
1. It will not be over quickly
I ended up selling The Tab twice. I’m going to refer to the first buyer as The Lads. We went through a full process with them, and signed all the documents. But when the time came to pay, seven months after they’d first made their offer, they didn’t have the money.
So I had to start all over again in January 2020, more than a year after I’d begun. By March 2020, I had formal written offers from two buyers, including News Corp, our main investors. And then the Covid crisis struck and they pulled out. I waited until things had calmed down a bit in July, and resumed the process. The deal finally completed on 30th September 2020.
If you’re selling your company, it probably won’t take as long as mine did, but do not expect this to be smooth or quick. There will be several moments where it feels like it’s all going to shit, there will be twists and unreasonable late requests. Ask people who work in M&A and they will tell you: it ain’t done until the paperwork is signed and the money is in the bank. Up until that point, everything that can go wrong probably will. That’s why so many deals fail.
Even if you get a smooth process, you may be tied to an earn-out (where you don’t receive your money until a later date, often contingent on you staying in your job, and sometimes on performance) and you will definitely have to give warranties (legal guarantees about the business which mean you can be sued if problems emerge later).
2. Don’t do this alone
Selling your company is a huge deal. It’s the moment you translate years of hard work and sacrifice into a cash reward. The stakes are high, the road is long, and the tactics can be complicated. This will take an emotional strain on you, and therefore I highly recommend having someone else involved in the process who you can call at any hour of the day.
Many sellers hire a broker, who typically takes a 1–3% cut of the money. Brokers say they will get you a higher price, ensure things run smoothly and allow a bit of distance between you and the seller.
As this wasn’t going to be a huge price tag, I opted instead to work with a shareholder, David, who is both a good friend and very experienced in Mergers and Acquisitions. We agreed he’d get 0.75% of the final price, which per hour ended up below minimum wage.
He was excellent, although probably not in the ways I expected. I found that I wanted to speak directly with the buyers, so I didn’t need a middleman. But as a person to discuss tactics with, and to get advice from, he was unbelievable. I was also lucky to have smart and decent people on our board from News Corp and Balderton who were very helpful.
I wouldn’t use a broker in future, especially as I enjoy the conversations and want to be fully in control of the process. But I found it very helpful having someone who can be a sounding board, advisor and occasional counsellor. It gets very lonely otherwise.
3. Get in shape before you start
For most of the period I was selling The Tab, it was losing money, and I was racing against the clock to complete the sale before the company died. Not only did this make the process about 100 times more stressful, it was also a major weakness in negotiations.
When it got to December 2019 and I realised The Lads weren’t going to cough up the cash, I decided to make painful cost cuts which would also reduce revenue drastically, but secure our long-term existence even if I couldn’t sell. I’d avoided these earlier because I thought having a big revenue number was important for the sale. In hindsight, I should have just made them at the beginning.
You probably aren’t presiding over a bonfire of cash like I was, but I’d still recommend a long, hard look at what you can cut to ensure the business is on solid ground. It’s surprising what you can find if you have to. You will have a much stronger hand, and you will also be protected against bastard buyers who try to drag out the process in the hope of pushing you over the edge and picking you up cheap.
4. It’s never too early to start
If I had my years as CEO again, I would dedicate more time to cultivating potential acquirers. I didn’t do this with anyone except News Corp, who owned 20% of The Tab.
At the very start of a sale process, you draw up a list of potential buyers. I’d never given this any thought and so was basically forced to trawl Google and then cold email people who didn’t know me. This reduced my chances of success and meant I wasted time on people who weren’t interested.
Getting to know people early means you build up trust, which makes doing a deal so much easier. And of course, it increases your chances of getting an offer out of the blue, which is usually preferable to running an outbound sale process.
You do need to be prepared to spot that opportunity. Back in 2016, I was trying to raise investment for The Tab with my co-founder when we learned that Rupert Murdoch wanted to see us. He had met with one of our investors and when he heard about The Tab, he apparently said: “I want to buy it”.
Unfortunately, I didn’t think we were ready to exit, and I just wanted to guarantee we’d get enough money to keep the company going, so I steered the whole conversation towards an investment, which we got. In hindsight I could probably have sold the company there and then for 5–10x more than we eventually got four years later. And yes, I think about that mistake a lot.
Which reminds me…
5. Timing is everything
If I’d been more experienced, I might have recognised that my Murdoch meeting was a great time to sell. Unfortunately, I was 27 and did not realise that our growth would peak within 18 months, and the digital media bubble would pop. Consequently, I missed the top of the market and ended up taking a much lower price at a later date.
Picking the perfect moment to exit is close to impossible, but if you founded your business with the intention of one day selling it, it’s worth exploring your options when the going is good and expectations are high.
Our former Chairman Jonathan Lander has a saying: “It’s better to travel than arrive”. If you are building a growth business (eg. launching in the US because you believed it will be just like the UK, only bigger), then people often give you the benefit of the doubt at the outset. If evidence of failure appears (e.g. the US ends up being different and more difficult), then you lose the benefit of the doubt. Often it’s better to sell before you arrive at the destination, when there is hope of upside.
6. Your buyer may not be who you expect
Over the whole two year sale process, I had formal offers from five companies. Only one of them was on my original target list of 30, and that was News Corp, who were a shareholder.
Going in, I’d expected our acquirer to be a massive global media company. But I didn’t have much luck with those targets. The people who ended up showing interest were smaller, newer companies who needed more scale, which I hadn’t really thought about.
Your initial target list should be as broad as possible. Putting the effort in on this at the beginning will save you a lot of time later because you won’t have to go back to square one. Go through your contacts: clients, suppliers, competitors, people you met at conferences. You should also chat to a few people you trust who know the industry well and can make suggestions.
If you don’t really exhaust this part, you might miss out on your best offer.
7. Getting the word out
Initially, I followed a traditional M&A process. I made a one page “teaser” document, which anonymises your company but describes your key information and selling points. David (our shareholder/advisor) then sent this to all our targets, and asked anyone interested to sign an NDA before giving them a full slide deck.
Later in the process I skipped the first step and just approached people directly with the full deck. If I was doing this again I’d stick with that approach, but I can see why the anonymous teaser is necessary for larger companies where secrecy is key.
I actually had the opposite problem: I needed more people to find out because my target list was short. One of our later bidders only learned we were selling when The Lads had to tell the stock market they were pulling out. Later on, I considered publicly announcing that we were for sale, but everyone I spoke to thought this would give out the wrong impression. I’m still not sure they were right, but you can avoid this dilemma if you have built good long-term relationships with potential acquirers.
People will ask you why you’re selling. I said something meaningless like: “We had a bit of interest, which prompted me to think about whether the time was right to sell, and I decided that it is.” It doesn’t really matter what you say, they will work out your real reasons very quickly. In future I’ll just say: “I’ve decided it’s time to cash in”.
8. Decide what you want
I get it, you want a shitload of cash, and you want it yesterday, with no strings attached. But what price will you accept? Would you take stock or do you just want cash? Do you want to stay with the business or leave? What about the rest of the team? Would you accept an earn-out where there is upside if things go well?
You can’t consider specifics when you don’t have them, but it’s a good idea to have a general view on these big questions early on. It helps with negotiations, but it also means you decide what you won’t compromise on. Later in the process, you will end up making compromises, so decide your red lines now. When you communicate them to the buyer is a different and more subtle question.
Besides the price, I cared about finding a buyer who understood The Tab’s DNA — our style of journalism and our interest in training student journalists and helping them get jobs. I wanted a good home for our staff and writers, and Digitalbox, our eventual buyer, scored really highly on this.
I also wanted to be free to start my next project which meant leaving my job as CEO. I knew this would impact the price but that was a trade-off I was willing to make. It was better to be clear on this than get sucked into accepting a commitment I didn’t want.
9. The three magic words: Ability To Pay
This is the number one thing I learned, and it was an extremely painful lesson.
There are plenty of ‘buyers’ out there who will pretend to you that they have the money to acquire your company, while behind the scenes they are trying to raise the funding to do it. Often they need you to accept their offer so they can get the funding.
In The Lads’ written offer, they said “funding already in place from [deleted fund name]”. They also showed us the term sheet for this funding. I typed the fund’s name into Google and the second suggested search was “death spiral”. Which didn’t exactly arouse confidence.
The Lads’ CEO also assured me by text: “Tbh I can raise a few m[illion] in a week on public markets or can get additional facility so whatever!”
Yeah, whatever! Fast forward seven months and they still didn’t have the money, despite giving me about six different stories about where they were getting it from.
At the outset, a couple of people warned me that The Lads clearly didn’t have the money and would probably never get it. But I was so blinded by the fact they had offered the highest price that I ignored the warning signs and went ahead.
It soon became clear that things weren’t right, but by that point we were running out of cash so I thought I had to stick with them. This meant ignoring even more warning signs. I did however insist on a £150,000 deposit, which ultimately kept us in business.
The lesson: if you have doubts about someone’s ability to pay, ask them for proof they have the money (and a non-refundable deposit too). If they can’t provide it, reject their offer, no matter how good it seems.
By proof, I mean a bank statement. When I ran the process for the second time, I had another bidder whose ability to pay seemed similarly shaky: I’d even heard he was fundraising with a deck that had The Tab listed as a planned acquisition. I asked him repeatedly for proof of funds and eventually received a letter from an obscure bank in the Marshall Islands which confirmed they had the money but added “the present information is delivered without any commitment or responsibility on our part.” Not good enough for me.
10. Competitive tension is everything
This is a fairly straightforward principle of negotiation: if your buyer is the only show in town, they will work that out very quickly and drive the price down. On the other hand, if you have more than one bidder, you will naturally be much tougher in your negotiations because losing one bidder doesn’t cost you the whole sale.
This matters for the big terms like price, but it also allows you to make other demands like shorter due diligence and stricter timelines.
How do you get competitive tension? With an exhaustive target list. Never stop talking to potential acquirers just because you have solid interest from one party.
A weaker alternative to competitive tension is having other options: maybe you do only have one interested buyer, but would you be willing to continue without selling the company? If so, make that clear and be prepared to walk the walk.
11. Mum’s the word
I managed to get competitive tension towards the end, but I sort of botched it by revealing the identity of the parties to each other. As a result, they talked and when their bids came in, they were very similar. Maybe it was a coincidence, but I didn’t do myself any favours by giving away that kind of information.
The point of competitive tension is to make the other side fearful that they won’t win. That fear is a lot less strong when they know who their competition is (and how much they’re paying).
I did read that in large corporate sales, leaking the details of a deal leads on average to an 18% increase in price, but also increases the chance of the deal failing entirely. As I found, there’s a wise way to leak and a stupid way. If you don’t know the difference, now probably isn’t the time to work it out.
12. Negotiations are won by whoever wants it less
This is one of Naval Ravikant’s principles, and it’s worth remembering in all your dealings.
The only way you’re going to get a good deal is by walking away if you don’t get what you want. That’s why you need to be clear on what you want in advance, and stick to it.
I didn’t exhibit much strength in my sale of The Tab, but I did have to walk away a few times to avoid getting a truly shitty deal. At one point, after the pandemic struck, I started receiving offers even lower than £750,000. After a year and a half, I was exhausted and tempted to just take them and move on. But I knew those weren’t fair prices, so I rejected them and opted to wait a few months for things to recover. Patience.
13. Agree as much as possible up front
As soon as you accept an offer and enter exclusivity (which buyers usually insist on), your hand becomes a lot weaker — suddenly they are your only option, and they are going to find reasons to knock the price down.
Therefore, agree everything in the term sheet before accepting their offer and entering exclusivity. Besides the key details, here’s what I agreed up front with Digitalbox:
- The terms of my departure, including the period I’d be staying on for and my pay.
- What restrictions there would be on my future employment, including ensuring I was free to write about the experience.
- Plans for the staff and the future of the platform.
- Structure of the deal (timings of payments, equity sale v asset sale).
- Who would be giving warranties (answer: the founders).
- Approach to DD.
- How company cash will be treated.
If I wasn’t already 20 months into the process by that point, I would have covered even more up front, especially the financial limitations on the warranties, which are one of the most important matters in the whole deal.
Strict timelines really matter, because otherwise a seller can drag it out deliberately — which could kill you if you’re losing money. You should agree a reasonable period for DD, and then ensure that the exclusivity period ends a week or two after that.
We also did the legal documents at the same time as DD, which saved time and also proved that our buyer was serious (because they were willing to spend money on lawyers before DD was done).
Going into a sale, every founder will have a list of worries in the back of their head: issues with the business, terms they know will be unpopular but they really want. Get these on the table when your hand is strongest.
14. Keeping costs down
It’s worth spending a decent amount (our fees were £25k) to get a good lawyer who communicates well and has a lot of experience with company sales — it will save you a lot of future liability and ensure things run smoothly.
On the first sale to The Lads, our fees spiralled out of control as the process got chaotic. I learned a few ways to keep costs down:
- Agree a fee cap, with a very detailed scope at the beginning: list all the main documents you expect to need, which ones will require drafting, how many rounds of major edits you expect (3–5 should be enough), any other work that needs doing. Ask them the talk you through the scope of a similar deal they’ve done in the past.
- Careful with small talk and digressions on phone calls with your lawyer. Some of them will bill you for that time, although good ones don’t.
- If you are arguing a commercial (as opposed to legal) point with the buyer, don’t let the lawyers go back and forth. Pick up the phone and resolve it yourself. You can waste a lot of money if you don’t do this.
- If money is tight, do the legwork yourself: you don’t need to pay the lawyer to fill out the addresses of your shareholders. You can save thousands this way.
- Make clear to your lawyer up front that you want to save on fees and they should flag things that can be done by you.
I used the excellent James Johnson at Wilsons LLP. On a transaction like ours, I would avoid huge London firms where you aren’t important and your fees are inflated by their expensive offices.
15. Don’t forget your staff and shareholders
It’s easy to get caught up in the impact of the sale on yourself and not think about the other people who are affected by it.
As CEO, you have a duty to shareholders to get them the best deal possible. We received one offer which included a really generous consultancy package for me, but less cash for shareholders. I had to reject it even though it would have been the best deal for me financially.
You also have a duty to communicate to shareholders, which can be tricky, especially if, like me, you have 34 shareholders and some very bad news. The only advice I can give is obvious: be candid and give them as much explanation as possible. Remember everyone’s first, second and third question is about the financial impact on them, so be up front about what they’re getting.
I’m torn on whether telling staff in advance is a good idea. The general wisdom is that it’s better to keep it a secret so you don’t create a destabilising distraction as people wonder how they will be affected and consider leaving.
I kept our first sale of the company a secret apart from telling one or two key people. But because I had told the whole company when we signed The Lads’ deal, I didn’t hide that we were looking for a new buyer when it fell through. I actually preferred being open and it felt more respectful towards them. But our headcount was 10 by this point — it would be different if we were 50.
16. Patience, my friend
I am not a patient person, and selling The Tab was a long and often painful experience. There were dark periods where I thought 10 years of work and our team’s jobs were about to go up in smoke. I really cannot offer better advice than “take each day at a time”. If you get obsessed with the end result you will drive yourself crazy.
You can also make the experience a lot easier for yourself by dealing with trustworthy people. Things really improved for me when I began to deal with Digitalbox and I even started to enjoy it.
They were straightforward and oozed trustworthiness, which was a big factor in choosing them. This was important as I wanted a buyer who would be a good long-term home for The Tab. In future deals, trust will be one of my key criteria.
When it‘s over
I always thought when the sale was done I would go on the mother of all benders to celebrate. Instead, I had a KitKat, my girlfriend gave me a gong bath and I went home and cleaned the dishwasher. I guess that’s growing up.
I‘ll be writing candidly about my experiences as founder/CEO of The Tab, follow me on Twitter to get it all. Feel free to DM me.