Why are M&A considered startups' survival in 2023?

Startups are facing a challenging environment in 2023, as the global economy is slowing down and investors are becoming more cautious, while global VC funding dropping by 35%. However, there is a silver lining for startups in this situation: mergers and acquisitions (M&A). M&A are not new phenomena in the business world, but they have become more prevalent and strategic in recent years. Especially for startups, M&A can be a vital way to survive and thrive in a competitive and uncertain market.

During 2022, the Middle East and North Africa (MENA) region reached $85.2bn targeting M&A .

So why are M&A considered startups' survival in 2023? Here are some reasons:

(1) Access to capital and resources

One of the main challenges that startups face is raising enough capital to grow and scale their businesses. M&A can provide a solution by allowing startups to access the financial resources, expertise, technology, customer base, distribution channels, and brand recognition of larger or more established companies.

(2) Diversification and innovation

Another benefit of M&A for startups is that it can help them diversify their product offerings. By merging with or being acquired by another company, startups can access more resources, customers, markets, and synergies with complementary businesses. This can enhance their competitive advantage, foster innovation, and avoid failure or bankruptcy by joining forces with a stronger partner.

For instance, Astratech UAE’s technology and investment group acquired the saudi fintech startup PayBy and USA’s startup Botim for undisclosed number in 6 months

(3) Scalability

M&A can also be an opportunity for startups that are doing well and want to scale up their business. By acquiring other companies, startups can expand their product portfolio, customer base, geographic reach, and competitive advantage. They can also leverage their valuation and bargaining power to negotiate better deals.

For example, GBarena Egypt’s largest eSports hub acquired Tunisia’s Galactech in a $15 million share swap deal in January 2023.

(4) Exit strategy

Finally, M&A can also serve as an exit strategy for startups that want to realize their value or pursue other opportunities. M&A can offer attractive returns for founders, investors, employees, and other stakeholders who have contributed to the success of the startup.

For example, Noon the e-commerce company has completed the acquisition of upmarket fashion retailer Namshi for $335 million (AED1.2 billion).

Therefore, we expect 2023 will be an exciting time for M&A in the startup ecosystem. Startups should consider M&A as a potential survival path if they are facing difficulties or as a growth strategy if they are thriving. Corporations should also keep an eye on the startup landscape and look for strategic acquisitions that can enhance their value proposition.

About Significa Ventures, a cross border Venture Capital investment management firm. We partner with startups, help in scaling and connect startups with corporations.

If you are working in a corporate development or investment team and would like to explore partnering with startups for innovation and complement your portfolio, please reach out to explore how best we can help you.

Resources:

https://dealroom.net/blog/upcoming-m-a

https://www.ey.com/en_sa/news/2023/03/mena-m-a-activity-reaches-new-heights-in-2022-with-754-deals

https://www.pwc.com/gx/en/services/deals/trends.html

https://www.crunchbase.com/organization/gbarena

https://www.crunchbase.com/organization/astra-tech-3c6a/company_financials