Today: Jul 20, 2024

M&A drag: Startup strain, longer deals, more fallouts.

7 months ago

Key Points:

  • M&A deals in the startup world are taking longer to complete and are more likely to fall apart.
  • The termination of the Figma-Adobe merger is a recent example of a prolonged acquisition process.
  • Extended M&A processes can put strain on private companies.

Mergers and acquisitions (M&A) in the startup world are becoming increasingly complex and time-consuming, resulting in longer completion times and a higher likelihood of deals falling apart. A recent example of this is the terminated merger between Figma and Adobe, which took a whopping 15 months from the announcement of the definitive agreement to the deal’s termination. This extended timeline, which includes the time spent on initial conversations, puts significant strain on private companies.

Despite the challenges of the acquisition process, Figma managed to continue shipping products and even added approximately 500 employees during this lengthy period. This highlights the resilience and adaptability of startups in navigating the uncertainties and delays associated with M&A transactions.

One potential reason for these prolonged M&A processes is the increased scrutiny and regulation surrounding deals, particularly those involving technology companies. Regulatory authorities are becoming more cautious in approving these transactions, as they strive to protect competition and prevent market consolidation that could stifle innovation. This added scrutiny results in a longer due diligence period and more intensive negotiations, contributing to the overall length of the acquisition process.

Another factor contributing to the delays and potential breakdown of M&A deals is the increasing complexity of technology and intellectual property rights. Technology startups often possess valuable intellectual property that needs to be thoroughly evaluated and properly protected during the acquisition process. This evaluation and negotiation process can take a significant amount of time, especially when dealing with complex software algorithms, patents, and licensing agreements.

Furthermore, cultural fit and alignment of values between acquiring companies and startups are becoming increasingly important in M&A transactions. Startups often have a unique culture and way of doing things, which may not seamlessly integrate with the acquiring company’s existing structure. This misalignment can lead to conflicts and challenges during the integration process, ultimately causing the deal to fall apart.

Startups must also carefully consider the potential impact of a lengthy acquisition process on their operations and growth. While some, like Figma, are able to continue shipping products and expanding their teams, others may face challenges in maintaining momentum and attracting new customers or investors. The uncertainty surrounding the outcome of the acquisition can also create tension within the startup, impacting employee morale and productivity.

In conclusion, M&A deals in the startup world are taking longer to complete and are more likely to fall apart. This extended timeline and increased risk can put strain on private companies, requiring them to navigate uncertainties, adapt their operations, and maintain momentum throughout the acquisition process. Startups must carefully consider the potential challenges and implications when embarking on an M&A journey, and ensure they have the necessary resources and resilience to withstand the complexities and delays that may arise.