As a startup owner in New Zealand, you may have considered whether you can fast-track growth through a merger or acquisition. Many startups will use external investment as a means for growth. You may also consider merging with other businesses as an alternative mechanism to accelerate growth. This article will explain how mergers and acquisitions may assist in accelerating the growth of your startup.
What are Mergers and Acquisitions?
Merger
A merger is the consolidation of two distinct organisations. Companies may do this to either increase horizontal or vertical integration. Horizontal integration is when a business increases production in a specific part of the supply chain. Vertical integration is when a business expands into a different part of the supply chain. It is common for businesses to enter into mergers to increase these types of integration.
Acquisition
An acquisition is when a company wholly consolidates another business into its own business. In short, a company or business buys another company or business.
Why You May Consider a Merger or Acquisition
Acquirer Benefits
Even if your startup is not performing as well as you had hoped, another startup/firm may consider buying it. They may do this for several reasons. For example, they may wish to buy your business to access your high-quality staff, specific assets or key business relationships.
Technology
Another reason a business may consider acquiring another business is because of the unique technology that the business may have developed. There are many startups in the technology space, so it is commonplace for them to be bought out by other businesses. These businesses might have the extra resources needed to develop a relevant idea further.
Accessing New Markets
Another benefit of merging your business or acquiring a new business is to access new markets. For example, your startup may merge with another business in Australia that trades in the same industry. This means that you have now gained access to the Australian market, which may be easier than launching your existing business in Australia when it has no existing local connections or business presence.
Essential reading for anyone building their startup. This free guide includes practical advice and seven real-life case studies.
Seller Benefits
As the founder of a startup that has been acquired, you are likely to benefit from the receipt of cash for your business. Likewise, you can use this cash to invest in other businesses or try creating a new startup. In a full acquisition context, you may also receive a job offer from the new company. This can allow you to continue working on the startup without any pressure of owning the business.
Investor Relations
Selling all or some of your startup enables your investors to realise some of their investment. As a startup, you have likely received seed funding from investors. These investors will want a return on their investment. By selling your startup, you can provide a return to your investors and solidify your relationship with them. This means it will be easier to convince investors to provide capital to your business as you have a track record of delivering returns.
Improves Efficiency
Another benefit of merging your business with another or selling it to another business is that efficiency may be improved due to economies of scale. As your business becomes larger, it will attain certain cost advantages.
Continue reading this article below the formKey Takeaways
Even though your startup might be at the start of its business growth cycle, you may benefit from certain merger or acquisition opportunities. A merger is when your business consolidates its operations with another business, and an acquisition is when you are bought by (or you acquire) another business. While there may be many benefits to your startup merging with, or being acquired by, another company, this is likely to result in some loss of control for the founders.
For more information on mergers or acquisitions, our experienced corporate transaction lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
This depends on your business, its current stage of growth and the market it operates in, and the context of the merger or acquisition opportunity that has been presented.
You can buy back your business as long as you have sufficient funding to do so in either debt or equity.
We appreciate your feedback – your submission has been successfully received.
