Fenwick corporate partner Dawn Belt talked to Mergermarket about how larger companies can bring a startup into the corporate fold without losing the individuality that made the company an appealing acquisition in the first place, and how both sides can prepare to make the most of a combination.
Belt emphasized the importance of doing “reverse diligence” when startup founders are looking to be acquired. “Sellers shouldn’t just be lured by the ‘sexy’ name or big brand of a buyer,” she said. “The startup needs to know if the buyer is going to take the time to develop an existing project and if they are going to deploy enough resources.”
Belt said that there is no single model to ensure that a merger succeeds, noting that different models work for different businesses. But as a rule, both the parent company and the startup need clarity in expectations. “Parent companies need to understand that they are buying centers of innovation and treat them accordingly. The startup business needs to be given a clear idea of what is expected,” she said.
For their part, the startup employees that move to the bigger company may have to change their mentality, too. “For many, it can be a very exciting time,” Belt said. “They may suddenly find that they have a lot more resources to deploy. But they might also find that they have less autonomy in pursuing the projects they are most passionate about, or in defining the direction a particular product or technology may take.”
While tech companies have been driving startup acquisitions in recent years, Belt said that cross-sector acquisition from more traditional industries into technology will continue to be a big part of the business world.
The full article is available on Mergermarket.