Startup M&A and roll-ups are predicted to rise in fintech and this already seems to be manifesting. Yet, recent events like Thrasio’s impending bankruptcy offer a cautionary tale.
The opportunities, pitfalls and risks of technology M&A are real. When does it make sense to execute M&A as a technology startup? And how can you avoid the most common pitfalls? We dive into both.
M&A Rationale: Before You Start, Make Sure The Whole Is Greater Than The Parts
As Simon from Marqeta told me: “I always say that M&A is a tactic and not a strategy. For Marqeta we have a north star we’re building towards and if acquiring a company can get us there faster we would look at it. Smart, well-built and well-run modern technology that can be additive to a greater mission will always be in demand.”
This is critical.
Startups must ask themselves the hard questions around the rationale for M&A.
Does M&A Expand Product Offering To Existing Customers?
In other words, does M&A allow increased cross-sell of new products to expand the relationship with the customer. In unit economics terms, this means average order value per customer (AOV) or lifetime value (LTV) expands, with a stable CAC.
As Ross Buhrdorf, the CEO of ZenBusiness and Founding CTO of Homeaway told me, “both at HomeAway and now at Zenbusiness we see roll-ups as an opportunity to accelerate growth via added distribution be it known brands in a market or organic SEO position.” (Disclosure: I was previously an investor in ZenBusiness at my previous firm).
Does M&A Expand Reach Beyond Existing Customers?
Certain acquisitions allow companies to better serve existing or new customers with the current product range in a more enduring way. This has an impact on customer acquisition cost (potentially lowering it) or market size (potentially expanding the reach of customers). Square’s purchase of Afterpay is an example.
For example, an acquisition of a similar business in a different geography or customer…
Read the full article here
