"Selling out", Part 1: Considering an acquisition offer?
How a buyer’s M&A strategy will affect your success
Have you been approached with an acquisition offer?
Are you considering joining forces with a larger company to maximize the success of your business?
Are you worried about retaining your top talents unless there is a step-change in your business scale?
For the founders reflecting on what’s best for the long-term success of the businesses they are building, the difficult fundraising market of 2023 makes the M&A path a more top-of-mind consideration.
Venture and growth investors in private companies continued to scale back their investment pace in the first quarter of 2023, Crunchbase data shows. Global funding in the first quarter reached $76 billion — marking a 53% decline year over year from $162 billion in the first quarter of 2022.
According to the Pitchbook Global M&A Report published in April 2023, founder-owned businesses made up 61.5% of all businesses sold in Q1, their highest share of the market since the great financial crisis. The share of the sub-$100 million companies among the M&A transactions is increasing.
Today, we talk about three types of the corporate buyers, what to expect from them post-acquisition, and how they might affect your long-term success.
Ranked from high to low on the long-term strategic rationale behind the acquisitions, and on the degree of independence granted to the acquisition targets, please meet the three types of the corporate M&A buyers.
1. Corporate Venture Builders
2. Business Integrators
3. Profitability Optimizers
Corporate Venture Builders are companies with a long-term M&A strategy and a portfolio approach towards investments. These companies do a lot of acquisitions, have a scientific approach towards the industries and the types of the companies to acquire. The M&A often starts with a minority stake, retains founders in their operational roles and as shareholders, and includes a clear path towards control in the share purchase agreement (SPA). Think of the companies such as Prosus, who lists 46 investments under their Ventures portfolio.
What are the implications for my business?
The key benefit is the continuity of operations, coupled with the increased funding runway. This is also the key risk: if the quality of operations or the organizational momentum were not on the right track, an acquisition by a Corporate Venture Builder will not change things for the better.
What to expect?
If you are proactive about it, you will get easy access to experienced Board Observers, and sparring opportunities with other founders or executives.
Extended funding runway and the feeling of belonging to a bigger umbrella organization can help you retain your top talent. It is especially valuable for smaller national companies joining large international groups.
You can accelerate success from your current momentum through such an acquisition; keep in mind that the acquisition itself will not create a success momentum.
What NOT to expect?
Don’t expect a step change in your backend systems or processes because of this M&A. Those will remain your responsibility and your costs.
Don’t expect a Corporate Brigade coming down and solving business model problems or Technology backlogs for you. This will also remain your responsibility post-acquisition.
Don’t expect unending support at any cost; likely your business is one of many acquisitions, and the buyer is rational in expecting some of them to fail.
When is a Corporate Venture Builder the right buyer for me?
When your business has a clear product-market fit and a growth momentum
When you see a market opportunity in scale that is beyond your own business’ organic potential
When you as a founder have the energy and drive to continue running it for another 3-7 years
When your business fits into the portfolio strategy of the buyer, clearly solving one of their key mission problems
When is a Corporate Venture Builder not the right buyer for me?
If your business is stagnating, or your business model needs a pivot, or the product-market fit is not there, being acquired will not change any of that, no matter how experienced or strategic the buyer is.
If you want to step down from operations within a short time horizon (1-2 years max), a Venture Builder acquirer will not provide the right succession that fast.
If your business is outside of the buyer’s established expertise, you will still experience all the burdens of a controlling shareholder without the benefits.
What if my business needs a different type of investor? What are the alternatives for Venture Builders?
In the next edition, we will talk about Business Integrators and the Profitability Optimizers.
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