Building Resistance to Acquisition

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Duration: 6:03
Source: Stanford ECorner
Author: Hugh Martin, Pacific Biosciences
Copyright: Creative Commons: by-nc-nd
Found: Nov 5, 2009

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The other thing I just want to talk a little bit about is how do you build in resistance to being acquired? So I thought a lot about this. There are many entrepreneurs who said, my company is going to go all the way, we’re never going to have to sell, we're in great shape, we're not going to sell. That was me prior to ONI. Once I saw how this worked, I deliberately structured PacBio in a couple of ways to make sure that the chances we'd have to sell were minimal. The best way to think about how you do that is to think about what actually happens when the company is going to get sold. So the first thing that has to happen is the management team has to decide that they want to sell. If the management team wants to sell, in general, the company will be sold. It's very difficult for the board to force the company to keep going if the management team wants to bail. But if you have a situation where the management team says, "We can do it. We're 100% confident that we want to move forward," and the board says you want to sell, then you've got a problem. So the most important thing to consider if you're going to build in immunity to being acquired is to think about that board because that's where all the power for a private company resides as to whether you're going to sell or not. Now, let's think about what happens when a board does this. So the first thing that will happen, I'll get a letter from Affymetrix and they'll say, "Dear Hugh, congratulations. We've done extensive valuation of your technology and your company and we want to buy you. We're willing to give you so much per share valuing the company at $1 billion." So we'll look at it and if we want to keep going and we don't want to do this, I have an obligation to take this letter and present it to the board. It has one other thing usually. At the bottom, it says, "P.S. If you don't take this offer, we're going to buy your next nearest competitor and we will crush you." They do that because they know...
Language: English
Category: Business
Tags: Hugh Martin, Pacific Biosciences
Country: United States


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