How Startups Can Leverage M&A As A Scale-Up Strategy During The Pandemic

When I scan the news for M&A announcements, I don't just see a list of deals that have closed, but a record of predictions. At its core, a business deal is an agreement between two or more parties who have come together over a shared vision of the future. Companies that have a strong sense of future direction are investing now – when things seem most uncertain – and following the maxim that the best way to predict the future is to make it.

Despite all the uncertainty that COVID-19 has caused in our lives, the trend towards remote and digital is universal. The trend towards digital was of course already underway prior to COVID-19. Just about everything from shopping to advertising, for both consumers and businesses, has been migrating from the physical world to the digital one.

Even in scenarios where we have a vaccine in place, the ability to connect with customers and constituencies remotely will remain critical. Maybe the fortunes of Zoom, Amazon and Peloton will return to their stratospheric acceleration, but the fact remains that digital adoption as measured by e-commerce activity has jumped further in the past months than in the prior decade.

With a trend that is this clear – the proverbial puck going clearly into one direction – M&A gives you what you need most right now, which is speed. Rather than holding back during a global pandemic, now is the time to consider the strategic options to move forward faster. At Episerver, the company I lead, we made two smaller acquisitions in the winter and then made our largest and most strategic acquisition during the summer, with the acquisition of Optimizely.

Fortunately, our investors, Insight Partners, share our perspective on the future of digital. I believe that we, like many successful start-ups, are not just sharing the same vision as the companies we've acquired but also making that vision a reality. As my teams and I have worked to make one company with one culture and one brand out of the firms we have brought together, I thought I'd share some learnings for those who might be (or hope to be) in the same spot.

Scale for the future, don’t consolidate the past

If you're a start-up, use M&As to position yourself for relevance and differentiation in the future, not as a way to consolidate your existing position.

It's established companies that have the luxury to use M&As defensively. They can survey the landscape for new territories and then simply choose to purchase rather than fight for them.

But as a start-up, your advantage is speed in all things. If you're not scaling quickly, you're not using what is your biggest advantage against bigger players. You can use M&As to speed into new markets, quickly bolt on capabilities that you don't have the time to build in-house or acquire talent you can't get any other way.

Ask yourself: Do the company you’re acquiring cover regions where you might want to expand? Does its products complement or duplicate your own? Do its customers and sales channels compete with or complete your own? Does the market share it serves duplicate or augment the one your company serves? There are many ways M&A can give you speed, but there are costs in energy, time and cultural disruption to consider.

Continuously assess your product strategy

During times of change, it is important to spend time engaging with customers and partners and to constantly revisit your product strategy to assess opportunities of differentiation and critical gaps. In the past months, we probably spoke at least twice a week about our product strategy, assessing build, partner and buy options along a continuum of critical capabilities.

It is important to have a clear framework for assessing your product strategy. In our case, we first stack ranked the customer requirements from most important to least. Then we scored ourselves against these requirements and used feedback from partners to validate our own assessment. Based on this ranking and benchmarking, we then discussed the level of investment and expertise needed to build it, partner or acquire the capabilities.

Write down the story

As the CEO, I personally have found that at different points in the M&A process, it makes sense to take a step back and write down the core hypothesis in your own words. In the case of our latest acquisition, I did this when we first had to decide to kick off the due diligence process, when we had to decide on the definitive intent, and also prior to the announcement.

Rather than listing all the things that could be positive about the acquisition, it is a litmus test to check if you have the one solid reason why it will be positive for customers, employees and shareholders.

Due diligence remains due diligence

The due diligence phase during COVID-19 doesn’t look all that different than pre-pandemic. Since all due diligence is done remotely and across time zones, it requires discipline to set clear milestones and to engage resources appropriately.

Communication must happen across all levels – chairman to chairman, CEO to CEO, CPO to CPO and so forth. This communication is critical, and it takes an extra effort to ensure that you stay in full alignment, even if your peer is not just down the hallway. Especially as questions come up, you want to be able to quickly resolve them. On the positive side, we were able to connect many key people from both organizations during the process.

As a start-up, leverage your networks

If your start-up is already scaling quickly, it means that you had the right vision for a particular industry or product at the right time. But it doesn't follow that you know everything about how to manage M&A. Sometimes it takes a partner with more experience or a broader point of view to help you see what your true differentiators are.

In the case of Episerver, we're fortunate to have the guidance of Insight Partners, a successful private equity growth investor. They've supported us not just with capital but with tremendous perspective and advice.

Remember that COVID-19 brings additional challenges to post-merger integration

When you are ready to make the acquisition, keep in mind that working remotely brings new challenges. The cultural integration that is so important to post-merger success starts with the communication platforms that your companies are using.

Is the company you’re acquiring on Slack or Teams or another platform? Is there an easy way to connect your teams and start building a common culture? How can you ensure that managers in both companies articulate the future vision correctly?

Many of the same issues that leaders need to address during an acquisition are amplified and become more urgent as you work remotely. Be prepared to spend a significant amount of your time and your leadership team’s time on communication, and have a plan in place on how to bring your two companies onto the same virtual platform quickly.

Alex Atzberger is CEO of Episerver, a digital commerce solution