When I was a partner in my own company, one of the things we (very optimistically) discussed from time to time was our "exit plan". An "exit plan" is what is able to be done if personal circumstances change, or there is a desire to do something else, or (alas) we just want to stop the existing work. Owning shares of a private company has varying obligations and expectations depending on the corporate charter and the corporate laws of the state. But, in general, any ownership is "non-liquid". There is no inherent correspondence to a monetary value and shares may, or may not, be possible to be sold to another for some mutually agreed value.
Building up the value of the company is a foundational desire for all corporate situations. And we did, with a 60% growth rate over the first six years of business. With escalating value (as measured by gross income, number of clients, and size of portfolio) the "exit plan" became of even more interest.
Would we work to get acquired, go public, continue to stay private and expand? Staying private had many appealing points and we had no problems staying in that state -- but it did not solve "exit" needs. We decided that, for us, the notion of going public did not appeal. We did not deeply study the process, so I cannot pass along any pearls of "wisdom" we obtained in that study. It requires a lot of bureaucracy and a very appealing (not just solid) business plan to attract both an underwriter and investors for the IPO. The overhead largely precludes its use for very small companies (you can define "a small company" for yourself).
Which leaves us with preparing for acquisition (only larger, well established, already public companies usually go through mergers). There are a number of aspects associated with valuation for acquisition. Gross income, Net income (profit margin), size of portfolio, "cost of entry" (how special is what you do -- could just anybody with just general knowledge easily do it), intellectual property (patents, copyrights, ...), seasoned informed staff (who will continue after acquisition), market projections, and other both tangible and intangible aspects.
Usually, the final valuation is expressed in terms of "multiples" of gross income. A "1x" valuation says the business is viable but they just think it is worth taking over but no special benefit or advantage. Less than a "1x" valuation is more in the "fire sale" area -- there are things that the company have that are useful but the business itself is not viable. Companies aim for a multiple of greater than 1. At certain periods of time, I have seen multiples of as much as 15 times (you may have seen higher). When the economy is not booming, a multiple of 6 times gross income might be considered a very nice number.
Another point of view is to look at acquisitions from the respect of "pain points". ("Pain points" can also apply to hiring decisions.) Say company X has a wide portfolio of products from A to H, but not something that fills in the "C" area. Getting a company that fills in the "C" gap addresses a current "pain" -- a loss of opportunity. Or company Q has a product FG that is rated only in the bottom half in comparison to its competitors and there is a smaller company T that has a product FZ which is rated at, or near, the top. This addresses the "pain point" of not being well competitive by purchasing the ability to bring the competitor's product into the fold. Other "pain points" exist. The basis is that there is something that the acquiring company finds difficult to do, or have, internally and can fill that need from outside.
So, you boost your value as much as you can. You have a general idea for whom you might fill some need/pain. Now you need a matchmaker -- someone who can find the company with the need that you can provide -- and who will negotiate a mutually acceptable amount. The matchmaker can be an employee of either company or she/he can be someone in an independent company that specializes more in M & A (Mergers and Acquisitions).
Part of the negotiation will involve continued commitments. Perhaps they want you (generic "you" -- it might be a number of people) to stay around for a couple of years. Perhaps they want you to leave immediately. Perhaps the company has to meet some type of goal within the next year or two. Perhaps the payments are done over time, each payment of which has to meet a specific criterion or set of criteria.
At some point, IF the acquisition succeeds, you are now ready for your next great adventure.
