M&A transactions involving start-ups and emerging businesses of all types offer advantages for both start-ups and investors.
Both to grow and to diversify the product portfolio. Acquiring an emerging business is an excellent way to stay competitive and stimulate a company’s growth quickly and efficiently. For example, acquiring startups can enable them to offer new solutions and services to their customers. This can quickly increase sales while saving on product development costs.
Established companies are looking to stay at the cutting edge of innovation. And acquiring a startup is a way of both acquiring new technologies and knowledge and keeping in touch with emerging trends.
Mergers and acquisitions (M&A) are one of the ways for startup founders and investors to materialise their divestment process in order to recoup their invested capital and make a profit. The other common way of harvesting or exiting is by selling shares in an initial public offering (IPO) or IPO. In this article, we will focus on M&A transactions, which in the case of emerging companies are usually carried out when their value has increased due to their growth.
Other reasons why a startup may undertake an M&A strategy are: to reduce costs, boost its commercial activity, diversify its product portfolio, improve its market share, increase its bargaining power, access new countries or sectors… In any case, these operations can be carried out between companies in the same sector or between companies operating in different markets.
One of the advantages of this strategy from the startup investors’ point of view is that it avoids the risk of going public and not finding a buyer for the shares. A merger or acquisition is a sure way to get rid of the shares.
From the point of view of the founders of a start-up company, entering into an M&A transaction means losing control of the company.
In addition, during the integration process the company faces a thorough investigation by potential buyers. This includes conducting at least one due diligence. In this process it is essential to provide sensitive data, which can result in a leakage of information that poses a fatal risk. To prevent any leakage of information, we recommend always signing a confidentiality agreement between both parties.
Due diligence is an audit of the company’s financial records. Its purpose is to corroborate that there are no errors or incidents in the accounts and to recognise possible contingencies and opportunities. This is an analysis that usually lasts for a month and is generally carried out by independent external consultants.
After reaching an agreement, it is vital that the changes and restructuring necessary to implement the merger or takeover are implemented as soon as possible. In this way, the benefits of the agreement can begin to be reaped as soon as possible.
In the M&A process of a startup, it is advisable to have the support of a specialist advisor. At Confianz we are prepared to accompany and advise you throughout this process.
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