The cycle of exiting through mergers or acquisitions is considered the "path" and "cycle" of startup businesses. Is this reflecting a return to a business world where the big fish eat the small fish?

The ongoing news of mergers and acquisitions involving Thai startups may lead outsiders to perceive this as the last wave of the startup era or the end of the age of “the fast fish eating the slow fish”. Is the business world reverting to a model where “the big fish eat the small fish”?

Even in the global business arena, four tech giants in Silicon Valley are facing intervention from the U.S. Department of Justice, accused of employing a Copy-Acquire-Kill strategy to grow their businesses. In other words, 1) they "copy" ideas from smaller competing startups, 2) they proceed to "acquire" businesses when they cannot execute their technology or business model as effectively, and 3) they "shut down" the acquired businesses to transfer customer bases, allowing them to scale without developing new businesses from scratch.

Recently, in the past few months, major companies have continued to acquire startups, such as Mastercard purchasing the fintech company Fincity for over $800 million, Facebook acquiring Giphy, a web portal for sharing animated images, Uber buying Postmates, a food delivery service for over $2 billion, and Zoom acquiring Keybase, a security startup, to enhance their enterprise-level end-to-end encryption services.

However, from the perspective of those within the startup community, the cycle of exiting through mergers or acquisitions is seen as a "path" and "cycle" of startups, differing only in who can exit at the most opportune "timing".

The ideal exit for most startups often does not involve going public or an IPO, as the path to becoming a publicly listed company carries high costs and risks. If unsuccessful within the planned timeframe, it not only becomes unworthy of the effort but could lead to a collapse due to strategies aimed at maintaining numbers and cutting costs to boost profits in preparation for an IPO, which may cause the business to lose focus on developing competitive capabilities and delay the implementation of new business strategies that foster medium to long-term growth.

Many companies that attempt to exit by mapping a road to an IPO end up abandoning the plan due to unfortunate external factors beyond their control, such as economic conditions or unforeseen events like Covid-19.

These companies may need to choose a new path, such as merging with business partners for survival and future growth. Exiting during such times may seem regrettable and a missed opportunity to many outsiders, but no one knows better than the founders that this may be the best option for today, as timing is everything in business.

The best growth option may not end with leading the business to become a listed company, but rather through mergers that ensure business survival. Many large organizations and startups choose mergers for growth and survival.

“The era of Big Exits is over, and we are now in the time of Many Small Exits,” is the opinion of M&A strategy analysts, which aligns with recent data showing a significant decrease in acquisition deals in the Asia-Pacific region, with nearly 50% of deals being below $1 billion. This indicates that many businesses in growth stages prefer M&A as an exit strategy over IPOs, partly due to economic conditions that have diminished the appeal of stock markets in nearly every country. The stock price indices and market caps of companies that went public in the past 2-3 years have struggled to maintain satisfactory performance.

For founding teams, “timing” and “opportunity” come with good preparation. The saying “Good companies are bought, not sold” remains true. An interesting company is one that people want to buy, not one that the owner wants to sell. There are three important things that business owners should create, whether they want to sell their business or not:

1. Create Salable Value that goes beyond just financial performance, focusing on Root Strengths such as technology, customer networks, or management teams.

2. Build Relationships with potential future buyers, whether as customers, suppliers, or business partners (70% of companies that exit have previously engaged in business with the acquirer).

3. Create Leverage for the business. Whether an exit results in a Good Deal or Bad Deal depends on how much leverage the business has, such as having multiple potential buyers or being able to create an impact for the buyer in a competitive market. Having options is a crucial factor in achieving the best outcomes.

Above all, the phrase “Timing is everything” is significant not only in starting a business but also in the right timing for founders to step away from the old to pursue new goals, whether in business or seeking other avenues to fulfill their passions in life.

SOURCE: www.bangkokbiznews.com