Founders selling their startups is becoming a common affair. According to YourStory Research, M&A deals have rocketed in 2021. The number of M&A transactions between January 2021 and the first week of August 2021 stands at 119 as compared to 86 for the whole of 2020. The value of disclosed deals has already hit $3.8 billion in 2021 as against $1.3 billion in the whole of 2020.
The surge in the acquisition, as per experts, is being driven by cheaper capital, resumption in deal-making after COVID pause, and the race among companies to adopt newer technologies.
From the acquiree’s point of view, the covid-induced hardships and jacked-up valuations due to high liquidity in the market are the motivating factors. Generally, there are four reasons why a founder sells his creation. Here are they:
An exit option
There are two-three major factors that decide when a founder exits his business. One of the most common motivations is the desire for an honorable exit from a startup that’s not doing well. The option makes sense for founders who do not want their years of hard work to get wasted. An exit ensures a longer life for the startup and allows the founders to reap some gain for their years of labor.
What are the best methods to speed up the growth of a startup? Well, there are many options but M&A stands out among them. Acquisition by an established peer provides a startup with the best resources to speed up expansion.
Source for exposure
First-time entrepreneurs often struggle on some fronts due to a lack of exposure. And this comes in their way to success. M&A can set things right on this front. By way of an acquisition deal, founders get exposed to many influential people. This inevitably leads to newer opportunities and the opening up of networks.
Jack up efficiency
After a certain point, startups find it tough to maintain high-efficiency levels. Acquisition is one way to solve this issue as a new infrastructure and a new management brings new blood in the organization.
A win-win deal
In an acquisition deal, there’s hardly ever a loser. Acquiree company gets a new life and gains access to new resources. Its founders and investors get deserving exits. The acquirer gets its hands on a newer tech and at times an entry to a sought-after market.
However, the real winner is the economy. Experts often gauge the health of an economy by studying the state of m&a deals. And rightly so. More the number of mergers and acquisitions, the brighter the condition of an economy is.
Companies looking to expand by way of acquisition signifies their positive view of the economy. Acquisitions also raise the overall efficiency of the economy as large-scale operations tend to make production more efficient. The combined profit also leads to greater investments in research, which ultimately opens up new business avenues. Opposed to the general belief, customers too gain from acquisition deals. A more efficient, advanced and digitalised industry is bound to produce cheaper and better products.
And most important of all, a surge in demand for tech startups boosts the morale of first-time entrepreneurs. Knowing that there’s someone somewhere ready to buy the business he or she is starting, reduces their fear of failure. A positive mood of the m&a market also motivates the younger generations to try their hands on entrepreneurship.