How I Sold My Company for $111 Million
By Rosalind Resnick
First, let me say that what happened at my company, NetCreations, Inc., whose story I am about to relate, took place during the heyday of the dot-com boom. That does, in part, color the tale of how I sold my company for $111 million in cash six years after co-founding it – yes, on my kitchen table in Hollywood, Fla.
Another part of the story, however, has little to do with heady times, and a lot to do with skillful negotiating -- and astute company building. And that's the part that you, the entrepreneur, can learn from as you build your company today.
Five factors need to be in place, in my view, in order for negotiations to go smoothly -- and I've bold-faced these points in the text below. The business itself must be scaleable – with a great product, a solid management team, and long-term contracts that ensure a recurring revenue stream. Its finances must be in order. You, as owner, must network with competitors, who are your most likely buyers. You must also, as the old saying goes, "Know when to hold 'em and know when to fold 'em." Finally, you must get liquid fast.
Great deals, in other words, don't happen in a day. They take time, patience, preparation, guts, and many years of building relationships with potential buyers. Only then can skillful negotiating kick in and produce the desired results.
As I look back on it, NetCreations had all of the above, as well as good timing. So keep those points in mind as you follow the trajectory of my story. Now, back to that kitchen table.
I had just come from a career in business journalism, learning the ropes at the Baltimore Sun and Miami Herald, then pursuing the story of the rise of the Internet economy for dozens of computer publications, among them Internet World, PC Today, and Home Office Computing.
Why, I eventually asked myself, should I be writing about this revolution unfolding before my eyes when I could be living it? That was when my partner (a talented programmer and our chief technical officer) and I came up with the idea of building databases on the Internet using e-mail addresses instead of postal addresses. In doing so, we also developed the then-unique concept of asking that people "opt in," or elect to have their names included in these databases.
That plan, which we called "100% Opt-In" e-mail marketing, is a trademark of our company. It contrasted with the prevailing practice of including the names of parties who might or might not be receptive. Those who weren't receptive would need, in turn, to "opt out" to get off lists. The opt-in strategy put us on the map, making us a leader in the market and enabling us to be profitable at a time when a lot of Internet companies were little more than ideas pursuing venture-capital funding.
NEGOTIATING THE CURVES.
We never were VC-financed: I owned 51% of the company, and my partner had 49%. We never sought venture capital. The closest we came to looking for outside funding was two-and-a-half years after our launch, when we wanted strategic cash, about $5 million for a 25% stake in our 10-person company. We immediately received an overture from our archrival, DoubleClick, the leader in Web-based banner advertising.
We demurred. Times were heady, and we decided we weren't ready to "fold 'em." Besides, I wanted to be CEO for life, running this hot little company with my partner. A year later, in 1999, DoubleClick approached us again, this time with a formal offer. By then, our negotiating prowess was in full swing. Again, we said no -- and for the same reason: the timing wasn't right. Internet companies were going public with a vengeance, and that, to me, was the rite of passage for an entrepreneur, the ultimate brass ring. I figured that we could always go back to DoubleClick if our IPO didn't work out.
Grunt work came next. Besides having a profitable company that is the market leader, your finances need to be in order. Ours weren't. I had been up to my eyeballs, acting as both CFO and CEO. So we brought in a professional CFO and Grant Thornton as our auditor. It took them nine months to tend to the necessary task of cleaning up our books.
In November, 1999, we went public at $13 a share. Our stock closed that day at $20, and, over the course of the next several months, mirrored the dizzying upward spiral of its peers, touching the high $60s in early 2000. Our decision to go the IPO route had been a good one after all, for we had achieved liquidity -- fast.
EYE OF THE HURRICANE.
Cut to July 2000, when I saw the movie, A Perfect Storm, and thought in my gut that it was an apt metaphor for where I saw the Internet economy heading. I realized that I would have to find a safe harbor for our company – and fast.
By that summer, our business was softening, even though we were doing everything we could to boost sales. The Internet market rally in May, 2000, which had followed the swoon in April, proved to be false. By September, we knew that, while we had exceeded earnings expectations for our second quarter, we would fall short in the third.
Our day of reckoning came on Sept. 12. After alerting our board that we would miss our numbers, we put out a press release and broke the news at an investor conference in Washington, D.C. Then, we watched as our stock plummeted, shedding half its value by the end of trading. A few days later, I picked up the phone and called DoubleClick. Time now to "fold 'em" – and by early October we had gotten an all-stock offer valued at $191 million.
OUT OF THE BLUE.
This decision didn't put cash in our pockets, but it was good enough. It was time to put our egos on the shelf, and better to walk away with something than be left with a worthless company that we might not be able to sell.
There the story would have ended, save for that networking I mentioned. In making the rounds, we had gotten to know a French direct marketer, Consodata, which had expressed interest in acquiring us. By that time, Consodata itself had sold a majority stake to a Turin-based conglomerate, SEAT Pagine Gialle, which publishes the Italian version of the Yellow Pages. It was SEAT Pagine Gialle that, much to our surprise and delight, stepped in with an unsolicited $111 million all-cash offer.
We closed the deal in February 2001. At a time when many Internet companies were dust and their stockholders penniless, I walked away with about $40 million, my partner about $37 million, and our public shareholders more than $33 million.
A SURVIVOR'S TALE.
I've lived, in other words, to tell the tale. These days, I've launched another company, Axxess Business Centers, which provides affordable consulting services for startups and small businesses. And I've thought a lot about my experience at NetCreations.
Partially a phenomenon of its era (surely we wouldn't be able to do that IPO today), NetCreations wasn't just a story about being in the right place at the right time. Its eventual sale for that sum at a time when Internet stocks were souring was more a matter of skillful negotiating -- and of seeing to it that the five factors that are the foundation of astute deal-making were firmly in place.
Reread the statements in this article that I've highlighted in boldface type. Then connect the dots. You'll see what I mean – and you'll know what you have to do to make negotiating work for your company.
Rosalind Resnick, founder, president and CEO of Axxess Business Centers, Inc., is a former business and computer journalist who built her Internet marketing company, NetCreations, Inc., from a two-person home-based startup to a public company that generated $58 million in sales.
Entrepreneur's Byline comes to BusinessWeek Online readers courtesy of EntreWorld.org, a resource for entrepreneurs that is sponsored by the nonprofit Ewing Marion Kauffman Foundation.