Managing Startups: Best Blog Posts

Chapter 62. Knowing Where the Exits Are

John O’Farrell

Taking the Exit

On July 23, 2007, HP announced it was buying Opsware for $1.6 billion in cash. By any measure, it was a very attractive deal for Opsware shareholders. The acquisition price of $14.25 a share represented a 74% premium over the prior six-month average, and a 40-fold return for anyone who had bet on us at our low point in October 2002, when only an intensive investor relations effort had saved us from NASDAQ delisting. Almost five years later, the acquisition multiple of almost 16 times trailing revenue still far exceeds that of any other billion-dollar-plus enterprise software acquisition—ever.

The hard work of hundreds of employees contributed to making us the clear high-growth market leader in what was finally an important enterprise software category, but the significant premium we achieved was also the result of a multi-year, strategic business development effort designed to turn a merely good outcome into a truly exceptional one. That business development effort was built around five key principles that you, too, should consider as you build your company:

1. Always know where the exits are. Take the time to build relationships with potential acquirers. You never know when you may need them.

2. Step back from the fray occasionally. Review the company’s strategic situation with the board every 12–18 months and evaluate the alternatives with quantitative and qualitative rigor.

3. In evaluating your alternatives, ask ...