Mon. Jan 17th, 2022

When starting founders think mergers and acquisitions (M&A), we tend to think of “Mad Men” style processes, with dramatic office realignment and expensive rebranding. However, the reality is that mergers and acquisitions are not limited to flashy corporate companies, nor do they require bulldozing through corporate culture.

In fact, as of early 2021, of the 530 startup acquisitions, more than half were startups buying other startups. More start-ups are climbing aboard the M&A train to capitalize on the technology and talent of fellow startups and absorb competitors. They’ve also realized that deals don’t have to carry the heavy price tags and bureaucracy that larger companies have to deal with.

I know this first hand from 15 years of buying and selling companies. I previously worked at JP Morgan, facilitating mergers and acquisitions for corporate banks, and I’ve taken what I learned into the startup space. I made 12 acquisitions on my retail platform Kiwoko, growing it to over €150 million in revenue, and it ended up being sold five times.

M&A is especially beneficial to startups that struggle to operationally scale because they essentially buy cash flow, revenue, and traffic from other companies, meaning startups are capturing a larger portion of their markets. They are also a great way for startups to find, consolidate and experiment with their value proposition. The problem, however, is that most founders don’t know how to get started with M&A and put themselves in the shadow of bigger players. But mergers are accessible and beneficial to companies of all sizes.

The human side of mergers and acquisitions is always the hardest to get right.

Here are my three insider tips for startup mergers and acquisitions:

Let your internal team get the ball rolling

M&A does come with some friction and costs, of course, but unlike companies, startups don’t need to outsource people to make the steps easier. You don’t need investment banks, advisors, legal teams and consultancies to make sure everything goes right.

Founders can conduct business and financial audits with the support of internal sources such as the accounting department and attorneys, as well as leverage their network and do due diligence through trusted connections. Granted, you have to put a lot of time and attention into this vetting phase, but it is possible and effective without bringing in new players.

In addition to logistics, founders must actively analyze the value of the intended company. For example, each of the acquisitions I’ve made — even at significantly smaller companies — had better purchasing terms with at least one supplier.

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