January 27, 2023


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M&A: the benefits and challenges for startups to know

It is not only the big ones who buy the small ones. Mergers and acquisitions are also carried out between start-ups, whether to acquire talent, expand internationally, get hold of a technology or diversify its range of products. Latest example with insurance tech Lovys which has just bought Otherwise and its collaborative auto and pet insurance.

The last few weeks have also been marked by purchases from digital marketer Sendinblue (three simultaneous acquisitions) and king of online behavior analysis Contentsquare (which has swallowed up Hotjar, a big Maltese competitor). “We are not yet witnessing an explosion in deals since the French start-up ecosystem is still young but more and more entrepreneurs are putting M&A in their strategy”, analyzes Arthur Porré, founder of Avolta Partners, investment bank specializing in tech. A sign of the growing importance of the subject, the Galion workshops, a popular meeting place for French Tech, which brings together around a hundred entrepreneurs, is devoting a round table to it this Wednesday, September 29.

# 1. Find the right target

To find the right nugget, some young shoots are setting up dedicated teams. This is the case of Voodoo (video games) which has recruited a person for acquisitions, the fintech iBanFirst which has assigned three full-time people on this subject or even Swile (employee benefits) which is currently setting up a specialized team.

Internal resources are not enough. It is necessary to go through investment banks and firms that detect the most relevant targets. “At first, I naively thought I would find a target and then offer to buy it back. But not everyone is a seller. Must therefore connect with dozens of companies to find the target which suits you best ”, testifies Pierre-Antoine Dusoulier, CEO and founder of iBanFirst.

# 2. International repurchase

The sweep can be very broad since most start-ups operate in European or even global markets. “M&A does not work the same in France as it does in Brazil or in other countries. We must therefore take local advice ”, emphasizes Loïc Soubeyrand, the boss of Swile, who has three acquisitions to his credit, including one in Brazil.

Buying a start-up abroad accelerates its internationalization. “Having 100 Brazilians on site with an already functional product is easier than having to start from scratch. Even if we have the means to open an office on our own, an acquisition makes it possible to win a year, which is a lot in our world, ”says Loïc Soubeyrand. Saving time means saving money. “Setting up a team abroad is very expensive in terms of recruitment because you have to give stock options. When you make an acquisition, you pay part of it in shares, ”recalls Pierre-Antoine Dusoulier.

To afford a start-up, you don’t need to have tens of millions in the bank either. Many “small” acquisitions are made every year in the ecosystem. “Making a sale at 10 million euros, it’s great,” tempers Arthur Porré. Having raised several tens or even a hundred million euros obviously helps, but it is also possible to go throughother types of financing such as debt.

# 3. The human transition

This is what iBanFirst has done (and will continue to do). “This allows us not to be diluted. But we still have to find people who lend, ”points out Pierre-Antoine Dusoulier, who recommends calculating the repayment of the loan, which can quickly raise the bill.

An acquisition is not just about financial choices. These are also human issues. The merger of the two teams must be settled before the takeover. “In the start-up world, the teams are relatively small. Integration is therefore relatively simple. The big stake remains find a place for the founder of the acquired company and make sure that the position suits him, ”advises Loïc Soubeyrand. “When you are a founder, you have to accept that your profession changes”, confirms Thibaud Martin, CEO of Jubiwee (employee engagement), bought in the summer by the German Coyo. Change in order to develop better.