When you hear about mergers and acquisitions (M&A), startups are normally the ones being acquired; not the ones acquiring. After all, acquisitions cost time and money, and they come with inherent risk. An acquisition gone wrong can hit even a strong business hard, especially when there is a mismatch between the culture and values of the two companies. Large corporations are ready to take on these risks, because the potential reward is so tempting: if all goes well, a company adds industry expertise or innovative tech solutions to their business fast, without the need to hire and train a new team, go through research and development, etc.

Yet, M&A can prove to work for startups as well- if done for the right reasons. M&A can help a startup achieve scale and complement their existing areas of expertise in a short time frame. Data shows that venture capital (VC)-backed startups globally have recently been on a shopping spree acquiring other companies, and 2022 may be a record year for this trend. In the first five months of the year alone, 663 startups have been acquired by other VC-backed companies.

Ankit Shah, Head of M&A, Mortgages UAE, Huspy; Jad Antoun, CEO and co-founder, Huspy; Ana Monteiro, GM Mortgages, Huspy; Ramesh Khemani, founder of Just Mortgages; Manish Bhaggnari, CEO and Founder, Finance Lab. Source: Huspy

At Huspy, we have completed three acquisitions in 2022 in an industry that is highly competitive and fragmented. In January 2022, Huspy acquired Home Matters to become the leader in the home mortgage segment in the UAE. We followed that up in August with the twin acquisitions of Just Mortgages and Finance Lab. Here are my learnings from our M&A strategy at Huspy, along with some advice for founders on what they should keep in mind if they go down this route too:

1. The acquisition must fit your business strategy First, understand if a particular acquisition makes sense for your business. Does it help you gain access to a new customer segment, expand to new markets, or explore different verticals? Having clarity on the objective of the acquisition is a key prerequisite for a successful transaction. Simply being able to afford it is not a good enough reason to follow through with the deal.
2. Know the financial impact Founders with strong cash flow or access to funding may find it tempting to acquire businesses for the simple reason of achieving scale. But without understanding the financial implications of acquiring a business, an acquisition may not have the intended impact on your company goals. As a business leader, you must work through how the two businesses can complement each other, to create top-line and/or bottom-line impact.
3. Commit to being hands-on through the acquisition An acquisition is much more than just a financial transaction. Founders must be involved through every stage– scouting for a deal, defining the terms, the agreement, and, at the very end, integrating the two businesses. It requires patience and active involvement to see this through. By being hands-on, founders also send the right signal to both teams of their commitment to make this a success.
4. Ensure the culture and values match It takes time and effort for a startup to define who they are as a team amidst the hustle and chaos of the early days, and then to stay true to those values. If you are at that stage, appreciate and celebrate the cultureyou have built, and evaluate if the other company’s culture is a good fit for you. When acquiring a company, you want to ensure that both businesses have a vision, culture, and values that align, or, at the very least, do not conflict with each other. This is especially important if you acquire a traditional business.
5. Communicate proactively In a startup focusing on growth, internal communications can often take a backseat. It is important that news about M&A is communicated to both teams timely and appropriately. By communicating early, you give your team members an opportunity to be engaged in the acquisition journey, and ensure their buy-in and support. It is crucial that employees hear about the acquisition first-hand internally, not while reading morning news.
6. Have an integration plan from day one, but remain flexible I believe that it is the people behind the M&A that ultimately determine whether it is a success or failure. Startups must always have a plan on how they are going to integrate the two businesses and create an environment that is welcoming of incoming employees. Craft an action plan with clear steps and a timeline to follow. The onboarding process is key for newcomers to understand the overarching vision, as well as the technicalities of daily routine: for instance, what tools to use, and how to communicate with other team members.

At Huspy, with team members coming in with years of experience in different domains –real estate, mortgages, banking and account management– we struggled initially to adapt the existing processes, and drive the adoption of the company’s customer relationship management (CRM). Each team member brought the working style and tools they had been using for years. Old habits die hard, but it is important to unify work processes if you want to build an efficient business. With a unified CRM, we are now able to create efficiency for the business, and a better employee experience across the organization. To achieve similar results, be prepared to continuously align and manage team’s expectations and make the necessary trade-offs along the way.

7. Communicate benefits to your existing customers and partners For a growth-oriented company, unlocking growth by way of an acquisition can be an obvious decision. However, companies must also evaluate how their current customers and partners will benefit from this. By acquiring a new business, will your customers have access to a range of new products? Alternatively, will your partners benefit from the increased scale of your operations? Let all of your ecosystem stakeholders understand the value of the acquisition and the opportunities for them.

Building a startup means having a bold vision and ambitious goals, taking risks, but also being able to fail fast, take full responsibility for your actions, and having a back-up plan. As I look back on Huspy’s two-year journey, acquisitions have provided us with significant scale, knowledge, and expertise that would otherwise have taken us time to gain. We launched the business to transform the entire home-buying experience in the region, from finding a house, to financing it, and closing the deal. And with the three acquisitions we have done this year, we are well on our way towards our goal.

Source Credit: Entrepreneur