M&A involving startups

This topic contains 18 replies, has 19 voices, and was last updated by  Boon Hon Low 1 month, 3 weeks ago.

Viewing 15 posts - 1 through 15 (of 19 total)
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  • #118445

    Terry Koh
    Participant

    Many times, a startup is successful and valuable because of its founder or founding team who has the drive and vision to lead the company. In the event where the founder cashes out and leaves the company upon successful acquisition by a bigger company, will the existing company then be able to remain competitive due to a change of leadership.

    #118516

    Sarah
    Participant

    I think that depends on the success of the integration. On one hand, if the integration goes well and the culture is intact the business should be able to remain competitive. On the other hand, if the integration went badly, the cultural shift was too great, and the turnover of employees was greater than expected you could run into issues. However, those issues could be temporary until everyone adapts to the changes with the integration.

    #119242

    NILTON YONEZAVA
    Participant

    In my opinion, if it’s a start-up, the chances are that the founders are who have the vision and were able to communicate this to the investor. In this scenario, I would say that the success of the future operation is highly dependent on them.

    #119250

    William Venus
    Participant

    I agree with Sara, it largely depends on the post integration planning and success of filling any leadership gap, perceived or not. Is the leader immediately cashed out or paid to ensure smooth transition for 1yr post close? If its immediate there are inherent risks and blind spots that could impact the success and ability to remain competitive.

    #120091

    Ceri Barton
    Participant

    I would agree that the success of the post-merger integration and the success of the business immediately after that would depend a lot on the retention of the Founder(s) in this case. Another consideration here would be who else would likely leave the business along with the Founder. What impact will their departure have on the desire of others to stay post-merger?

    #120122

    Ian Smith
    Participant

    For me this should be picked up in due diligence and then accommodated for in PMI. What I see in start-ups is that the business owner sometimes does the lions share of the work and manages things like key contracts/accounts and/or is the main client interface. And so, should they be looking to sell, as part of due diligence he or she should have to think about who will do that work when they are gone in the target business? in the Buyer’s business? and then this can be implemented as a key goal within the IMO.

    #120246

    R Ganes Ramalingam
    Participant

    In my opinion, this consideration should be part of the M&A process before the deal is closed. Generally, its best if the change of leadership and management is done gradually. In most of the M&A deals that I’ve been involved, we won’t acquire 100% right-out, usually we take a majority stake and have the controlling rights. We let the founder and his management team to run the business under our guidance, till his/her remaining shares are bought over which was agreed in the put/call option. Then when he/she leaves, we bring in a leader, at that point the transition would be smooth, most management staff would be comfortable to stay on.

    #120400

    In my point of view when this happen both companies will have some dificulties do manager this change. For example, the acquiring company generally bigger than startup companie will have a lot of rules, sistem and governance do to the things, and the other side, the target company (in this case, a startup) probably don’t have many rules and compliance, and this help him to do the things faster. This example, generally is the cause that why M&As fails, even if you keep the leadership, because the excess of rules, compliance and slowness that the target companie wasn’t used to, it is difficult to stay competitive.

    #120406

    Mirinda Lowe
    Participant

    There are several sides to this to consider. Yes, often the founder(s) are a large part of the success of the original company. This is true in terms of vision, management, staff retention, as well as customer attraction many times. So, keeping the founder(s) on the management team can be very valuable, even critical to the merger success. Often, though, the founder will not be as engaged, for reasons several here have noted. The founder is used to it being there company, being in charge. Moving to being a small part of a structured organization can leave them less than engaged, and wanting to leave. They usually do leave, well before they often say they will. This is true often of much of the management level of small organizations acquired by large companies. Sometimes, the leaders staying can be a negative for the new company, if they are not fully supportive, their presence can be detrimental to ongoing success. The acquiring company needs to evaluate all these options in depth as part of their change management of the integration.

    #120754

    The startup’s Financial Statements and Projections will need to be double checked and ensured that it’s properly auditted

    #120905


    Participant

    It depends the role and the influence of founder in the target company. Is the branding or performance of the target company highly depends on the founder? Under a comprehensive due diligence process before the merger being completed, the relevant possible departure of founder would have been identified and a comprehensive PMI would have been in place. A good and comprehensive PMI would have covered the potential departure of founder if he is required to be in the company for certain post merger period including legal binding for the undesired consequence as a result of founder resignation if required.

    #120979

    Pawankumar Sharda
    Participant

    If someone thinks emotionally or rationally, then it may sound like the startup company may not remain competitive if the founder/owner has exited the startup.
    But at the same time, we can think that why would the startup will not be competitive any longer once it is acquired by a bigger company. If there are proper synergies in place or things go right, definitely, the startup may prosper. The startup has got the infrastructure of a bigger company and the acquirer has acquired for a reason by paying some substantial price. They would not let it die unless the acquisition process failed. I would rather think that the acquirer in this case bigger than the startup is BIG due to their process, technology, skills, etc, and has some vision. The vision for the startup by a bigger company may not completely align with the founder, but they may reach the place where they want to be in the world.

    #120981

    Majed Faraj
    Participant

    Culture was found to be the cause of 30 percent of failed integrations. Under a comprehensive due diligence process before the merger being completed, the mission and vision of the new company should be identified and a comprehensive culture should be in place. 

    Success of the integration shouldn’t be relay on the existence of people but the Integrating Company Cultures leads and supports the objectives of the company.

    #121315

    Claire
    Participant

    One factor would be the maturity of the startup. If there is some structure, and product is clear, then there is a higher possibility the M&A would do more good than bad to the startup. Otherwise, if key decisions for developing the products are left to the bigger company, then the vision may be different, leading to a higher possibility of failure.

    #121432

    Craig Hasler
    Participant

    Hi Terry,

    Thanks for the prompt.

    While there are many great points above related to post-merger integration and the specific role/responsibilities of the founder(s) moving forward once the startup is absorbed into the larger company (acquirer), I think the success of the transaction hinges on the type of technology, solution, or service being acquired. For example, if the technology is highly sophisticated or complex (and possibly has plans for future iterations or extensions), then it may make sense to keep the founders (or most competent product/solution engineers) locked up for a longer period of time to ensure that the “know-how” and expertise can properly be absorbed into the acquirers’ business. Generally, acquirers will like to see founders kept on board for 1-2 years following deal closure, but ultimately this is negotiated. It also must be said that if the founders leave the acquired business (startup) post-integration, there is a greater likelihood that employees from the acquired company may also leave in the future.

    Thanks for sharing!

    Craig

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