How to Grow by Acquistion
Over the past 3 years, the MENA has had more than 30 publicly announced mergers/ acquisitions across tech startups and geographies in MENA, of which more than two thirds were acquihires (acquisitions to acquire the second startups talent) or expansion strategies (acquisitions in new markets as a penetration strategy).
Elie Nasr (Managing Partner and Co-Founder of FOO), Mahmoud Fouz (CEO of Easy Middle East) and Moderator Christos Mastoras (Founder and Managing Partner of Illiad Partners) came together to discuss the strategic considerations that companies undertake while deciding to compete with or acquire startups in target markets, how they evaluate and negotiate acquisition opportunities, and how they integrate the acquisition afterwards to successfully drive rapid growth.
The Benefits of Mergers & Acquistions (M&A)
The benefits of M&A are many, they can lead to increased value generation, an increase in cost efficiency and an increase in market share. They can also help a company enter new markets, explore new verticals, increase their footprint, grow rapidly and eliminate competition.
In the case of Zain Group, taking a strategic stake in the Lebanon-based mobile app developer FOO early last year gave both companies access to more verticals they could tackle and benefit from, in addition to giving Zain access to new industries. Zain also invested strategically in a smart city advisory and consulting services provider called neXgen Group in the UAE, with the aim of establishing a specialized business unit that will deliver smart city services to governments and mega real estate developers, facilitating the deployment of smart city solutions.
The Elements of a Good Buyout
In order for a merger or acqusition to be successful, it must be based on mature decisions from both parties and a clear goal. Choosing the right company to merge with or acquire is crucial, and both parties must align on their interests and not just the financial aspect of the transaction.
Moreover, both companies must decide on the extent to which the investing company can interfere in management. For example, in the case of FOO, an agreement was made that FOO operate and innovate on their own with no interference from Zain, and the two companies only collaborate together when needed.
In other cases, where a company is looking to scale up, a complete merge may make more sense. However, bringing two business cultures together can be a challenging task, and the acquiring company should address this when choosing their target, making sure the business cultures are compatible and aligning on long term interests.
Killing the Competition
While most of the acquisitions made in the region occur when a company wants to enter a new market or increase their footprint, it is likely we will start to see companies and particularly startups killing competition or growing by acquiring other startups. This will occur as the sizes and amount of deals or investments across rounds increases, and more and more startups go through A,B and C rounds of funding, increasing their capacity to raise more money that can then be used to acquire other startups, whether competitors or not.