Are You Looking For Buyers For Your Startup? Know These 5 Things Before You Merge
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Every other day, a new headline hits newspapers about big names in the start-up ecosystem merging with or acquiring new start-ups.
Gone are the days, when mergers and acquisitions were restricted to the corporate community. Given the start-up boom in India, the Indian start-up ecosystem is growing leaps and bounds, with new ideas cropping up every other day. But with these new ideas, it is a given that there also exist similar ideas in the market that are targeting the same sectors. Competition stiffens and each tries to outdo the other.
Mergers then come into the picture, where instead of continuing with the rivalry, start-ups look at working together to better serve their target segment.
But a merger often brings with it confusion and chaos within the company. Entrepreneur India spoke to experts about how to deal with mergers and the best ways to go about it, without harming employee interests.
When is the Right Time?
A recent merger in the market is that of deals and discovery platforms Nearbuy and Little Internet, with Paytm backing them up by investing in the deal, while also opening up the product for their consumers too. Ankur Warikoo, founder and CEO, Nearbuy, said that for them as they serve a niche market of Online to Offline, the merger was an evident move. Being a young market, where you buy things online but consume it offline, it requires a lot of patient capital. “There needs to be a lot of investment with no hurry for returns. There also needs to be a clear positioning for the product,” said Warikoo.
In their case, while Nearbuy accounts for almost 60 per cent of the market share, Little Internet took credit for about 30 per cent. Together, they now control almost 90 per cent of the market along with the secure backing of Paytm, which brings them the best of both worlds – financial and technological. “We are no more fighting for the same market share and are instead looking at contributing to it together. We can also now use Paytm’s massive demand platform,” he said.
With the legal aspect of the merger, an entrepreneur also needs to keep in mind all aspects that ensure their innovation doesn’t go out of their hand and instead grows well with the other party. Shantanu Sahay, partner at Anand and Anand advocates, believes that the exit policy should secure the best interests of both parties. Having said that, the control going forward should also be clearly demarcated so that the existing teams continue to work with the same passion. “The infrastructural, financial and human resource management should all be thought through. Whether it can sustain in its existing model or not, whether the IT infrastructure is enough, etc. From a regulatory point of view, existing software products, data security and privacy should be looked at, there should be no lapse during the transition,” said Sahay.
#5 Best Practices an Entrepreneur Should follow during a Merger
Warikoo also shared with us the 5 best practices that an entrepreneur should keep in mind during a merger.
The merger needs to have a very strong business objective, believes Warikoo. It should add to the business top line while at the same time also create an efficient cost structure for the company. “The absence of these objectives will make no sense for a merger,” he said.
Co-ordination is Key
A business merger involves a lot of back and forth between the two companies, there are many questions to be asked and puzzles that need to be solved. In such a situation, e-mails are the worst way to communicate believes Warikoo. “The best way to expedite the matter is to have face time with your colleagues. Get them all for a meeting or get on a call and iron out the issues,” he said and added that it’s also best to avoid speaking to partners individually.
Handle the Outcome Anxiety
Amidst the chaos of the merger, employees often feel threatened about their future in the company. They feel that their jobs are at stake, bringing on-board a lot of anxiety. It is very important that during this process, there’s a very important line of communication that is sent out to employees, clients and merchants said Warikoo. “The morale of the company shouldn’t be affected,” he said.
In their case, as Nearbuy is welcoming Little Internet into their family, while the former’s employees were secure, the latter were handled efficiently by the management. The HR team and founders are spending time with employees to ensure a smooth transition.
Who’s the Next Leader?
Once a merger has been finalised, it is important to think about the transition period. The Hows’ and the Whys’ need to be figured out wisely by the management. Here, Warikoo also believes that there should be a clear line of leadership that ensures everyone continues to work for the common goal.
Keep Everyone’s Interest in Mind
A merger is not just about the two companies and their founders. It involves the lives of all their employees and clients and it is essential that their best interests are kept in mind. “Be open to communication and even for a hard conversation,” he said.