Appendix: The Acquisition Checklist

Each of the leaders I spoke with had unique experiences, but as you can tell, there’s similarities in each acquisition that lead to a pretty crisp, clear set of heuristics for considering and preparing for a sale. These are the things to do as you entertain the idea, and as you go through the long, arduous process:

Identify why you are selling your company.

What a silly thing to have to remember to do, but how easy it is to skip: ask yourself why you are selling your company, and be honest in your answer. And then, as a constant reminder, write down your goal for the acquisition, put it on the wall, and live with it for a while.

I’m considering selling because…

• I’m bored and want a new challenge.
• I want the money.
• I’m ready to retire.
• I’m sick of some of the existing parts of running the business.
• I want to expand our sales pipeline.
• I want to grow the size of the team.
• I no longer want to be anxious about, or responsible for, payroll.
• I want to complement or grow the team’s skillset.
• I want to be part of something bigger.

Plan your time.

Before you begin the process in-depth, create a plan for how your time will be spent; in the plan, address these points:

• Ensure the plan covers at least six months, and plan for a year
• Assume that you will need help: it will be really hard for you to run your business and work through the process at once
• Plan for the most time during the diligence process

The form of the plan isn’t important—it can be bullet points on a list, post-it notes on your wall, or a written narrative—but you can start by answering questions like this:

What are the things I do right now in the business that take up the most time?

• Who will do those things if I don’t have time?
• Will they need to know about the potential sale process?

What are the things I do right now that no one else can do?

• What will I sacrifice in order to keep doing those things while simultaneously dedicating myself to the sale?
• What are initiatives or activities I can back away from during the process, in order to free up more time?

What are trips or vacations that I have planned during the next 6–12 months?

• Can these be canceled or postponed?
• Will these events still be valuable or pleasurable if I’m on the phone or computer for a large part of the time?

What are things I do outside of work that take up the most time?

• How can I carve out time for my friends and family?
• How can I carve out time for my hobbies, activities, or things that I find relaxing and calming?

Create an advisory team.

You’ll need a team to support you in the process to advise on and handle specific topics, many of which are topics designers typically stray away from. Include people to cover these roles, and if you don’t already have people in your network like this, ask these questions as you recruit or hire them:

A banker

• Have you worked on acquisitions before?
• Have you worked on acquisitions of service companies before?
• Have you worked on acquisitions of creative design studios or agencies before?
• Do you have references from prior sales who I can talk to?
• Who will be working on my sale?
• How much time will I have with a partner, vs a junior associate?
• What multiples are you seeing in my industry?
• Who are some of the companies you will introduce me to right away?
• What is your compensation fee structure?
• Can you give me an example of how much I’ll end up paying you based on various scenarios?

A law firm

• Have you worked on acquisitions before?
• Have you worked on acquisitions of service companies before?
• Have you worked on acquisitions of creative design studios or agencies before?
• Do you have references from prior sales who I can talk to?
• Who will be working on my sale?
• What are your fees?
• Are any fees tied to the success of the sale?
• Are any of the fees percentage based, rather than fixed?
• How will I communicate with you?
• How will you communicate with my banker or M&A advisor?

A CPA

• Have you worked on acquisitions before?
• Have you worked on acquisitions of service companies before?
• Have you worked on acquisitions of creative design studios or agencies before?
• Do you have references from prior sales who I can talk to?
• Have you worked through tax implications of M&A compensation structures?
• Have you worked with earned-out money?
• Have you worked with earned-out stock grants (in a public or private company)? Are you familiar with the IRS’s 83(b) and other related laws and rules?
• Have you worked with the tax implications of Safe Harbor/Nexus?

Other founders

• Can you share the terms of your deal?
• Are you happy you sold?
• What multiple was your company valuation based on?
• What do you wish you had done differently?

Interview the potential acquirer, extensively.

You’ll never really understand a company culture until you find yourself in it, but you can get to know the people you’ll be working with by interviewing them as much as possible.

I would recommend these explicit interview steps to include, likely after the LOI is signed but before getting too far into diligence.

Do a project with the management team.

It doesn’t need to be a complete client project, although that would be great; any project where you make things together will help you see how people think and act in a collaborative session. Some potential projects might include:

• Workshop the integration plan together.
• Brainstorm how the sales teams or business development processes will integrate.
• Co-sell something (either for real or hypothetically) where you both work on a pitch together.

In all cases, consider using your designerly process, which probably includes collaborative sketching, dreaming, externalization, and deep dives that last more than an hour. Look for clues about how the acquirer acts during these meetings, and consider checklists like these:

Who showed up?

• Did the executive team make time for the meeting?
• Were they really present, in mind, body, and spirit?
• Did they include other people, like their directors or star players?
• Did your potential new boss show up? Do they know who that is yet?
• Did they come in person?

How did they behave?

• Did they arrive on time?
• Did they help plan the session?
• Did they make things, and draw, and get hands-on?
• Did they close their laptops and turn off their phones?
• Did they ask questions?
• Did they make statements?
• Did they dedicate a material amount of time?
• Did they take responsibility for next steps or meetings to follow?

How did you feel?

• Were you intimidated?
• Were you supported?
• Did you feel like one team? How long did it take to feel that way?
• Did you feel equal?
• Did you sense optimism and potential?
• Did you feel heard?

One thing to try to observe during meetings with leadership is how people react to conflict or challenge. Push back (nicely!) on things they say, or question the root of their assertions; see how they respond. Find ways to provoke a rainy-day interaction, so you can see what happens when people aren’t on their best footing.

A big clue about how you’ll interact with a potential new management team will be how much time they are willing to give you. If the best they can do is a one-hour Zoom call, you can infer how difficult it’s going to be to get their attention when you really need it.

Learn about the details of operations.

Since small, day-to-day interactions will have large impacts on sentiment, I would recommend doing your best to understand the details of what you and your team will experience by way of operations. Ask to speak with someone who can describe the mechanics of how their company runs, and consider prompting conversations around these questions:

What software is used, and what is the process, for…

• Invoicing clients
• Paying employees
• Submitting expense reports
• Requesting time off
• Tracking P&L
• Viewing quarterly financial progress
• Viewing accounts receivable and status of payment
• Requesting new software for your team or yourself
• Installing things on your laptop
• Getting new or replacement hardware
• Buying furniture for the office
• Buying supplies
• Training, both required and optional
• Giving raises
• Hiring & firing

Find out about approvals—what’s the process, who’s involved, how many people have to sign off, and how long these things take.

Make sure to learn about the different costs that you may not have been expecting, but asking things related to shared-services or overhead:

Will my business unit or team incur costs related to…

• Required training, such as harassment or safety education
• IT purchases, both for staff (laptops, monitors) but also infrastructure (internet, cloud storage)
• Food, beverages, snacks, and supplies
• Human Resources, Financial Services, and other fundamentals of running the business
• Facilities, including maintenance and upkeep, but also the basics: utilities, furniture, cleaning

Talk to the people who do the work.

Make an effort to drop below the C-suite or executives and interview the people who actually do the project work. If the company already has designers, find some time with them. Try to ask questions about:

What are projects like?

• What are you working on right now? Can I see it?
• Who is involved in defining, selling or scoping the work?
• Who do you work with on a daily basis?
• What software and hardware do you use? How do you feel about it?
• How long are your projects? Is that enough time?
• Do you have formal ways to get project feedback or criticism?

What’s the management team like?

• Who is your manager? What are your interactions with them like?
• How frequently do you interact with the “skip level”—people one title or jump above your manager?
• If you asked the company management what you do, what would they say?

Negotiate hard up-front.

Before the LOI is in place, make sure you’ve pushed for the things that matter. Make sure you reflect on these things to see if they are important, and if they are, treat them as “first-class citizens” for negotiation, and get them in writing.

Reflect on hard and soft constraints.

How much control are you really willing to give up? Consider these constraints, and work through the implications of your answers:

What are the constraints you’ll put on the deal during negotiation?

Be clear about worst-case scenarios and termination.

Work through these scenarios with your lawyer, and make sure you’re clear about what happens in each case:; what happens if…

• I’m fired for no reason?
• I’m fired for a legitimate reason?
• I’m let go during a layoff or staff reduction?
• The company goes public?
• The company is sold to another company?
• There’s a reorg and I’m moved into a different business unit?
• I’m given a new manager?
• My title changes, and it is considered a demotion?
• My budget is decreased, or taken away entirely?
• My team is taken away from me, laid off, or fired?

Get your documents organized.

When you get to diligence, you’ll have to produce a large quantity of documents. Here’s a checklist of the things you’ll need to gather (at a minimum):

Organization

A buyer will look for:

• Certificate of Filing with the state
• Operating Agreement
• Any documents related to stock or equity
• Company minutes for the last three years

Contracts—SOWs

A buyer will look for your SOW documents and a summary of the materials:

Contracts—MSAs

A buyer will look for your MSA documents, signed, as well as a summary of the materials:

Invoices

A buyer will look for your invoices, as well as a summary of the materials:

Financials

A buyer will look for:

• Three year trailing documents:, including reconciled P&L, bank statements , payroll per employee, tax returns for company, tax returns for owners, if the company is an LLC (and sometimes even if it isn’t), and utilization reports for employees by employee, month, and client
• 18 month forward-looking P&L
• Accounts receivable and aging summary
• Insurance COIs

Human Resources

A buyer will look for:

• Signed employee agreements from the last three years
• Signed contractor agreements from the last three years
• Documents of all benefit programs offered to employees
• Documents of all policies, such as privacy, sexual harassment, etc.

Leases & inventory

A buyer will look for:

• Signed lease agreements for any facilities
• A list of all physical assets, primarily focused on furniture and computer hardware, along with depreciation schedules
• A list of all digital assets, such as website URLs

Put these items in a single place (Dropbox, Google Drive, etc.), and track them in a spreadsheet, so you’ll be able to produce them quickly and without the added anxiety of organization during negotiation.

Make an integration plan.

Every single person I spoke with who had a negative sale process attributed it, in small or large, to the lack of a clear plan for integration. I would recommend working in close collaboration with your buyer to create a plan that includes all of these things (which are, basically, every part of the business!).

Organizational

Clients and Contracts

Creative Services

Technology Operations

People Operations

Budgeting and Spending

Facilities

Brand

Be skeptical of the phrase “we’ll figure it out later,” and scenario-play the most important changes, to really think through how a change will work and feel.

Most importantly, write this integration plan down. And if parts of it are critical to your success, make those parts (or the whole thing) legally binding by including it in the sale agreement.

Take care of your team.

Most of the people I spoke with intended to take care of their team, but didn’t feel that they did enough to ensure that their employees and colleagues were treated with the respect they deserved; some expressed regret related to both financial and cultural outcomes. Here are some of the things you can do to ensure you take care of your team:

Carve out money for retention.

Even if you haven’t explicitly tied your personal compensation to the retention of your team, you’ll want them to stick around. When things get rough, you’ll need a way to motivate them, and while money isn’t everything, it can sometimes be enough to get you through a rough transitional period. Recall that a number of the stories you’ve read mentioned money that was promised but disappeared; you won’t be able to procure raises, bonuses, and an explicitly retention budget unless you argue for it up-front.

Give your team enough time to understand what’s happening, and help them process the change.

The secrecy of the sale process often ends in an abrupt announcement, after the sale is concluded. But imagine being on the receiving end of that; yesterday, you worked at one company, today, you work at another, and you had no say in the matter. The longer you can provide your team to come to terms with the change, the better. If you can bring a larger group into the conversation early, do it; as Chris Conley described, he actually handed the transactional reins over to his trusted team. In addition to signaling trust, this gave the team much longer to better consider the implications of the change and get ready for it.

There is typically a large announcement to the company after a deal closes, and then the team attempts to go back to business as usual. But it’s not usual, and a single meeting will not be enough for people to process the change. Hold multiple meetings to discuss the transaction, even weeks or months after the change has been initially communicated. Conduct small group meetings with key players from both your company and the buyer’s company, so they have opportunities to get to know one another. Anticipate the animosity that Maria described at Facebook, and do your best to head off cultural differences by creating social events for both teams to experience at once.

Above all, try to remind yourself that, while you’ve been living the realities of the transaction for almost a year, your team is brand new to the change. They need more than a day, or a few hours, to get to try on the idea.

Be honest about ups, downs, unexpected events

Change is scary, and while it’s beneficial to verbally champion the new buyer, it’s also valuable for people to explore a more tempered reality; designers are particularly good at seeing through a veil of optimism. This means being clear about some of the trepidation you had and may continue to have, and describing the real risks and challenges that are on the horizon. Every person I spoke with described that the integration is going to be hard (or downright impossible), and that’s a good place to start this form of honest and earnest conversation.

Take care of yourself and your loved ones.

If you’ve thoughtfully made up your mind to go down the process, it’s important to take care of your mental and physical health. You can’t make rational decisions if you’re a ball of anxiety, and the long hours of screen-time will take a toll on your body. And if you have family and friends supporting you, they’ll absorb your emotions, too. This process will eat you up if you let it. So, I would recommend you:

1. Do something physical. If you go to the gym, keep going. If you run, keep running. And if you don’t do any of these things, this is a pretty good time to start.
2. Go outside. Nature has a way of resetting anxiety. There’s a Ralph Waldo Emerson quote that I’ve found captures this beautifully:
   In the woods… a man casts off his years, as the snake his slough, and at what period so ever of life, is always a child. In the woods, is perpetual youth… In the woods, we return to reason and faith. There I feel that nothing can befall me in life—no disgrace, no calamity.
3. Keep an eye on the drinking. If you find yourself on a roadshow, you’ll be doing a lot of dinners, and a lot of happy hours. If you’re a drinker, you’ll see it ratchet up here, and I know I’m not on my A-game when I’m hung over.
4. Share details with your partner, if you have one. I’m not sure my wife really cared about the nuances of my SG&A forecast, but I know she felt happy about being included at that level of detail. It may be the last thing you want to talk about over dinner after thinking about it all day, but it will go a long way.
5. Set expectations about “do not disturb” hours with your team. My lawyer was great, and she stayed in constant communication with me. That meant I was getting texts at all hours of the night. It became important for me to be proactive in letting her know, “You won’t be getting a response from me quickly at these times of day,” so she wasn’t left waiting at a critical moment.

Put these things on your calendar or to-do list, or you won’t do them. Even hobbies that you regularly engage in will take the back burner as the excitement and anxiety of the deal progress. Make these things “first class citizens” in the context of your day.

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