How We Acquired a Business (Part 2)
Last week, we published a post about how we acquired Fomo (formerly Notify), an app that’s now doing $30k/month in revenue. It also kicked off some great discussion on reddit.
In this post, we’ll dig into more details.
How We Bought It
We knew this was an app we wanted, and saw a clear path to growing it post-purchase.
Now came the hard part: buying the thing!
Buying an app, no matter how small, is a lot of work. I’d tried to purchase similar software tools in the past and understood how hard it was to come to an agreement. The process involves a good bit of legal spend and can fall apart at the drop of a hat.
First, we wanted to see how serious Scott (the app developer) was about selling. We emailed him and grabbed dinner just 7 days after our first email exchange.
During dinner, we expressed our admiration for what he’d accomplished (which was truly impressive). We covered our backgrounds, and shared the many ideas we had for the product that could make it a homerun.
Dinner went swimmingly, and we learned a lot more about the product. Then, we followed up with some questions to kick off due diligence:
After taking 4 days to review the numbers he sent over, we responded with a non-binding Letter of Intent: basically, a legal letter that proved we were serious about buying the business.
Once that was out, we spent roughly 2 weeks discussing terms of the acquisition.
One of the best pieces of advice I’ve gotten around acquisitions came from a mentor of mine, who suggested going with a “my price, your terms vs. your price, my terms” model of negotiation.
Basically, let’s say we wanted to buy the app for $1mm, but he wanted to sell it to us for $1.5mm. In a scenario like this, we’d put an offer in front of him for $1mm cash, up-front (his terms, our price), vs. an alternate offer of $1.5mm paid out over 1-2 years via monthly cash disbursements.
In this case, we ended up going with the latter: his price, our terms.
After agreeing to terms -- not an easy thing to do! -- we received a signed LOI on February 24… just 23 days after our first email to Scott!
Then, it was diligence time. We asked him to complete a questionnaire about Notify’s growth, revenue, tools used, etc., as well as give us all the logins related to the business.
While going through the materials he gave us for diligence, we worked with a lawyer to pull together an Asset Purchase Agreement (APA) - basically, the document that’d make the sale official.
Fast forward to closing day, March 10, 2016. We received a signed APA and now owned a business that was already generating cash!
Now, after several months of work, we’ve re-launched Notify as Fomo, a social proof app that improves conversion rates on any site.
note: at the request of the seller, we can’t reveal the exact acquisition price