M&A is back on the corporate growth agenda, but one reason why acquisitions of start-ups sometimes fail is because the acquiring company doesn’t take into account the challenge of blending two different cultures following the acquisition. But integrating acquisitions quickly is also the fastest way to monetize the investment. So before companies even approach a potential target, they need to be clear on what it is they need most from the purchase and what value they are willing to risk losing by moving quickly to integrate it.
Benefits for investors, growth for businesses
Businesses acquire start-ups for many reasons. Some companies see them as a strategic route to growth, others as tactical opportunities to quickly build scale. Others view M&A as a means to buy into new technologies or services for their long-term growth potential or sometimes simply to keep competitors from snapping them up first. Still other companies look at M&A as a way to make up for lost time, replenishing their pipeline of product ideas.
What is clear is that M&A has become an important tool for businesses striving to keep up with the accelerating pace of competition, technological innovation and business disruption.
In this accelerated business environment, errors are more costly than ever. Acquisitions fail to achieve full anticipated value for many reasons, so deciding whether to attempt one begins with having clarity on a range of considerations. These include knowing exactly what you are buying, why you are buying it, what it will cost, what your alternative strategies are and what your integration plan is.
An early post-acquisition challenge, and probably the most important one for the acquiring business is overcoming the potential for a culture clash. Many start-ups, or small, boutique businesses, thrive on an entrepreneurial, free-thinking environment for generating innovative ideas, so preserving this is critical to making a successful contribution to the larger business.
Indeed, for some companies, acquiring staff with a specific skill set, in a particular geography, with intellectual property or for change leadership — sometimes known as acqui-hiring or talent-hiring – can be the main reason for making the acquisition.
But many businesses, particularly established or traditional ones, still narrowly focus on generating almost immediate ROI, or have cumbersome processes that can impede the development of the new products and services in which many start-ups specialize. This can create frustration for staff at the acquired company, and can lead to early staff departures and value leakage.
To avoid misunderstandings, corporates need to communicate with all stakeholders at an early stage, preferably before making the acquisition. They also need to look carefully at the type of staff members the acquired business has and assess how much they should be integrated into the wider organization.