When founders of startups If we think about mergers and acquisitions (M&A), we tend to think about Mad Men-style processes, involving drastic office remodeling and expensive rebranding. The reality, however, is that mergers and acquisitions are not limited to flashy corporate deals, nor do they need to bypass company culture.
In fact, since the beginning of 2021, out of 530 startup acquisitions, over half they were startups buying other startups. More early-stage companies are jumping on the M&A train to harness the technology and talent of other startups and absorb competitors. They also realized that businesses don’t need to have the cumbersome price tags and bureaucracy that bigger companies navigate.
I’ve known this firsthand for 15 years buying and selling companies. Previously, I worked at JP Morgan, facilitating mergers and acquisitions for corporate banks, and I took what I learned into the startup space, where I now use them to expand my businesses. I made 12 acquisitions on my Kiwoko retail platform, which helped it grow to over €150 million in revenue and ended up being sold five times.
Mergers and acquisitions are particularly beneficial for startups struggling to scale operationally because they basically buy cash flow, revenue and traffic from other companies, which means startups capture a larger share of their markets. They are also a good way for startups to find, consolidate and experience their value proposition. The problem, however, is that most founders don’t know how to get started with mergers and acquisitions and resign themselves to the shadows of big players. But mergers are affordable and win-win for companies of all sizes.
The human side of M&A is always the hardest to get right.
Here are my top three tips for startup M&A:
Let your in-house team kick things off
Mergers and acquisitions naturally come with some friction and cost, but unlike companies, startups don’t need to outsource people to smooth the steps. You don’t need investment banks, consultants, legal teams and consulting firms to make sure everything runs smoothly.
Founders can perform business and financial checks with the support of internal resources such as the accounting department and lawyers, as well as leverage their network and do due diligence through trusted connections. It’s true that you need to spend a lot of time and focus on this verification stage, but it’s possible and effective without bringing in new players.
In addition to logistics, founders need to actively analyze the value of the target company. For example, all purchases I made – even with significantly smaller companies – had better purchase terms with at least one supplier.