Selling your esports company can take a long time and seem like a huge mystery. It’s incredibly stressful as the company you built can finally pay off. Or will it? There are some pitfalls to avoid when selling any business. If you’d like to know a bit more about me and my accomplishments please visit the link and check it out. Please note, I am not a broker and these are my personal experiences dealing with other companies.
- This is going to take a lot of time. A LOT.
- Deals can take quite a long time. Generally anywhere from 6 months to a few years depending on the size and scope of the deal. I will be speaking about smaller deals and my experiences with them. There a ton of legal issues to go through and you’ll need a good lawyer and potentially a broker if you’re not negotiating your own deal. A broker can help (for a fee) if you have a buyer to ensure your best interests are looked after and you’re not signing a bad deal. Broker fees vary from company to company so ask around. Don’t rush!
- Ensure you’re selling your business for the right reasons
- Whether it’s selling to exit, selling to find a strategic partner or selling to get out of an industry. Selling for the right reason is key. This is going to take a lot of time so if you’re not serious don’t bother.
- Finding a buyer & assessing your value correctly
- Finding a buyer is incredibly difficult. You don’t want to sell to anyone and it has to make sense for both parties. Chances are you’ll be tied to the company afterwards with something called the “golden handcuffs”. It’s usually an incentive to somehow stay on with the company that is acquiring you as you will have specific knowledge of how your business runs etc. If something feels off with your conversations and you’re not 100% committed to the idea it’s better to walk away.
- When you’re discussing your business you’re going to be selling A) yourself B) the business. A lot of the times people buying a business at lower revenues care more about the management team and not so much about the revenues (depending on who you’re talking to). Ensure you can tell a story about your business + yourself.
- The next point is make sure you assess your value correctly. Check out industry multipliers and ensure that your revenue something where you can justify what you’re asking. For example, my gross revenue is $500,000 but my ask is $3,000,000. That means my multiplier is 6x topline revenues. A buyer will ask what your net is so be prepared to discuss high level financials. Ensure you’re comfortable!
- Weigh your options
- If you have multiple buyers or a single buyer. You need to ask yourself what is the best way forward to ensure the growth of myself and my company. For example, you’re a tournament organizer in esports and you have begun discussions with two companies. One is a sports team in Europe and the other is a media company in South America. They each present their own pros and cons and you’re going to have to weigh each of them. There’s no right or wrong answer but it’ll become clearer if you advance to the next step.
- Check the term sheet
- Congratulations, you’ve received a term sheet! This is sent to you by the buyer or investor. This is a non binding document that generally has high level business terms on it. For example, you’d receive an offer of $1,000,000 for your company and it may include the following terms:
- Offer of $1,000,000 (30% stock, 70% cash)
- 100,000 shares in XYZ Corp – 25,000 to be released each quarter (called a hold period)
- Voting rights
- Conditions, can include has to pass due diligence,
- Potential exclusivity for XYZ days.
- Confidentiality
- Expiry clause
- Governing law
- Currency stipulations
- Around 3-6 pages in length depending
- These are all negotiable depending on how much leverage you have. Having someone in your corner who can understand the terms is important. If you have someone on your team who has been there before it’s even better. IF not, you can hire help!
- Congratulations, you’ve received a term sheet! This is sent to you by the buyer or investor. This is a non binding document that generally has high level business terms on it. For example, you’d receive an offer of $1,000,000 for your company and it may include the following terms:
- Hire Help if needed
- Reach out to a broker to discuss your term sheet. They charge a fee but depending on the deal size it may be worth doing as they can save you a lot of grief or tell you your deal sucks or certain things are unusual.
- Gather your paperwork for the other party due diligence
- The company that is acquiring you will do a ton of due diligence generally. Things include:
- Your financials
- Your contracts
- Any legal agreements or litigation
- IP you own
- Trademarks you own
- Special business secrets
- and about 50 other things.
- The process takes quite long. Be thorough here as if you are not truthful or do not disclose information it can lead to potential lawsuits down the road. For example, you misrepresented financials and your accountant is saying something else than you provided. Trouble!
- The company that is acquiring you will do a ton of due diligence generally. Things include:
- Do your due diligence on the party that is making an offer
- Are they a public company? If so, make sure you check out SEDAR and their public records. Chances are they have to file quarterly and disclose interim financial statements. Things to look for if they are public:
- Can they meet their obligations for the next 12 months?
- What is their cash position?
- Are there any pending lawsuits? If so, why and when? What is the expected outcome?
- What’s their gross revenue? Net revenue?
- Do they have trailing revenues?
- Do they need to dilute and raise due to an unfavorable cash position? If so, how does that impact your share?
- Is the company on the upward trend or are they a company that is desperate and looking to “re-invent” themselves with an acquisition.
- Does the company strategy make sense?
- Does the company have a management team that can guide them through the strategy they set out?
- What do shareholders think of them?
- How long have they been public for?
- What other assets do they own?
- A lot of the above also applies to private companies. However, getting their financial statements may be a bit harder. You will need to ask for them and they should share them with you as due diligence is a two way street.
- Are they a public company? If so, make sure you check out SEDAR and their public records. Chances are they have to file quarterly and disclose interim financial statements. Things to look for if they are public:
- Know when to walk away
- Knowing when to walk away is key to any deal. Even though you spent 10 months negotiating and you’re now on the definitive agreement, it doesn’t matter. Don’t be married to a deal. Make sure you can move on and take it as a lessoned learned. Sometimes, the most valuable item to learn is the experience you gained and the process of going through it so you know what not to do next time!
- If you have an agreement, on the term sheet and due diligence, prepare for the definitive agreement
- One of the longest steps. Legal has a field day here and be prepared for deal fatigue. It’s real! Also, be prepared to walk away. If a deal doesn’t make sense move on. Also, if your term sheet isn’t in depth this is where you may have to do more legal work. I would suggest having a more thorough term sheet to ensure both parties are on the same side.
- After the definitive is signed there are post closing documents and a bunch of other paperwork. If you’re interested in learning more just contact me.
- Learn to say goodbye
- It won’t be your company anymore. Ensure you’re at peace with what happens in the future. Whether you stay on another 5 years or leave after your contract is over. Make sure you can say goodbye as it’s no longer your company.
- Even if you’re not selling, practice like you might one day
- Make sure you have best practices around account keeping, contracts, business dealings, revenues and relationships. Always keep logs if you can and document / record
So there you have it. 12 quick tips to selling your esports company. Feel free to reach out and contact me. I’m sure I’ve missed a few steps but happy to answer or offer some of my esports services.