Stop treating M&A as a mandatory move for strategic buyers

If it were, they would have reached out.

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At the Seed and Series A stages, VC-backed companies are expected to maintain high growth (100%+ YoY) driven by a strong combination of:

• product differentiation,

• an effective go-to-market operations,

• and a fully developed management team.

When a company lacks one of these critical building blocks, growth often stalls around €3–5M ARR.

In this scenario, the top strategic priority becomes achieving profitable operations while sustaining growth. The second priority is planning for an exit.

I’ve written before about the distinction between post-money valuation (implied valuation) and enterprise value.

For example, if a company raises €5M in a Series A round at a €20M valuation, this does not mean the entire company is currently worth €25M. Instead, this figure represents an implied valuation.

Selling 25% of the equity for €20M only means that 25% of the company is worth €20M. The actual value of 100% of the equity — i.e., the enterprise value — remains unproven.

In such a case, raising €5M at a €20M valuation implies that the company will use the funds to build a business capable of achieving an enterprise value of at least €25M. This would allow investors to be “in the money” without relying on downside protection mechanisms.

Returning to the earlier scenario, after addressing the first strategic priority, we’re left with a company generating €5M in ARR, experiencing modest growth (around 20%), and operating at breakeven.

When it comes to the exit, being “in the money” may not be enough for the Series A investors, who might need at least a 2x return to justify this investment to their LPs.

This outcome expectation is disconnected from the company’s intrinsic value, resulting in a price-to-value gap.

This is the moment for M&A advisors to step in, expected to implement a well-defined go-to-market strategy to bring in the right buyers to bridge the price-to-value gap through competitive bidding.

When we jump in, I always begin by asking who they believe the right buyers are.

In my view, the right buyer is characterized by:

• A strong intention to buy (#1)

• A high willingness to pay (#2)

• Dedicated resources for M&A (#3)

However, I’ve noticed two common misconceptions:

• Sellers focus on public corporations or large private companies — because of #3

• They assume these large strategic buyers will have #1 (strong intent) & #2 (willingness to pay) once they realize how the product or technology could enhance their offering or reduce their costs.

In my experience, if a large strategic buyer truly needs to integrate a technology to address a product gap or boost revenue, they would typically have reached out directly.

In other words, we would have received inbound M&A interest.

Furthermore, an outbound M&A go-to-market approach targeting large strategic buyers is ineffective because these buyers often lack the intent to make acquisitions.

By intent, I mean the commitment to invest time, effort, and resources into completing the transaction within a reasonable timeframe.

Going outbound to these buyers is more likely to end in a pass. While it might spark some curiosity, it is far from actual intent. Sellers who mistake curiosity for intent risk dealing with buyers who:

• Frequently fail to honor commitments regarding follow-ups.

• Postpone meetings abruptly, often by several weeks.

• Disappear without explanation, only to resurface unexpectedly.

However, in an outbound M&A go-to-market approach, what could drive intent is the size of the target.

I’ve written before that contrary to what many expect integrating a $5M ARR company demands similar resources as a $50M ARR one, making larger deals a more efficient use of resources.

These large strategic buyers generally require a target company with at least $20M ARR to consider an acquisition seriously; for some, like Salesforce, the threshold is closer to $50M.

For our €5M ARR companies, buyers with revenues between €50M and €150M are generally more inclined to allocate time and resources to our deal.

However, board members often overlook these smaller buyers due to several perceptions:

• Visibility: These buyers are less visible in the M&A market, raising doubts about their ability to pay a competitive price.

• Financial Capacity: They are often seen as lacking sufficient cash to meet value expectations.

• M&A Experience: Many are perceived to lack the expertise needed to execute acquisitions, making them less likely to become serious bidders.

And in most cases, these assumptions are correct.

Nonetheless, there is a specific subset of smaller buyers that meets my definition of the “right buyer” — private equity-backed (PE-backed) companies, which are majority-owned by a buyout fund.

These buyers align with my criteria for the right buyer because:

• #1 Intent: They have a clear mandate to pursue additional “bolt-on” acquisitions of similar companies and operate with the speed of a private equity firm.

• #2 Willingness to Pay: They are willing to pay for the strategic value of a company, enabling them to unlock synergies and maximize the value of the acquisition.

• #3 Resources: These buyers are supported by established internal frameworks and processes that facilitate funding and efficient execution of deals. Their capabilities often include strong legal, financial, and consulting relationships that ensure a smooth transaction process.

In the end, a well-executed outbound GTM M&A process begins with assessing whether these buyers are addressable.

Thanks for reading!