Monday, April 15, 2024

After Elon Musk pulled back on $44bn deal to buy Twitter – what does it mean for M&As in 2022?

The world’s richest person and Chief Executive Officer of Tesla – Elon Musk – stated on Friday 22nd of July that he was terminating his $44 billion deal to buy Twitter because the social media platform had failed to provide accurate user information regarding bot and fake accounts. Global M&A deal value reached the highest level on record in 2021, however, economic uncertainty, low valuations caused by high inflation and a rising cost of capital saw successful M&A deals drop 10% in Q1 of 2022 from the previous quarter. Although various surveys indicate optimism remains bullish towards the next 12 months, the number of mega deals (valued greater than $1 billion) has dipped by over a third. Trachet – business advisory and startup accelerator – highlights the fact that between 70-90% of deals fall through and that startups must be prepared and have enlisted the help of expert advisors to help get an M&A over the line.
As UK startups at many stages are experiencing an absence of funding, navigating a successful M&A has become their only alternative, particularly for those with a high cash burn. For those looking to navigate an exit, it is critical to consider the various factors that can cause a deal to fail. Aside from various regulatory challenges and cultural implications which hamper deals, in many occasions the factors that ensure a successful M&A are preparation and time. It usually takes at least 3-6 months to execute an M&A, from devising a step-by-step plan, identifying the right companies, and closing the deal. When there’s a forecasted cash flow issue this is the window for startups to develop the best possible terms for an exit strategy. If the business does not have a CFO but is predicting a negative cash flow cycle with the possibility that investors may pull their funding, hiring a CFO is crucial for conducting an M&A.

According to data from Deloitte, nearly two-thirds (63%) of businesses report that the success of their M&A was moderately or highly dependent on a successful transformation – often led by a senior level and external advisor. In order for startups to take advantage of the exit opportunities, Claire Trachet outlines the importance of bringing an experienced CFO or COO to implement transformational changes to working capital, reorganization, increasing cost reduction, and legal entity restructuring to secure the best deal possible.
Business advisor, Claire Trachet, CEO & Founder of Trachet comments on the VC pullback of 2022:
“As global funding continues to recede, it is the late-stage startups with a negative cash flow that have raised money at high prices, that are going to be the most compromised – the well of easy money has dried up.
“My best piece of advice in these challenging times is to assess end goals – perhaps in light of what’s happening, a better course of action may be to consider an exit, or conversely there may be another company worth acquiring to fortify and expand existing operations. The point is to keep moving forward, that means being diligent with the business’s working capital by optimising cash flow, reviewing the contracts you have with your clients and minimising accounts recievables. Applying this mentality to the whole of the organisation is going to be key in the next year, whether you’re entering a fundraising round or considering an exit – ideally startups should be doing both.”

Claire Trachet is also available to discuss the following points pertaining to the steps start up founders can take to navigate through their first recession:
•              The challenges that founders will face in trying to scale up over the next 18 months
•              The evolving nature of the start-up arena for the UK
•              Her experience in providing proper structure to scale-ups looking to secure finance or exit
About Trachet:

The Trachet advisory team has been helping founders accelerate growth since 2016, utilising decades of cross-industry experience as one of the only female-led teams in the sector. Trachet also firmly believes in the importance of sourcing and matching the right buyers for their clients. Their people-first approach ensures that the businesses and founders they work with are able to secure finance or complete deals in a way that allows the company to achieve their commercial growth goals while fulfilling their mission.

Trachet has significant experience of working across sub-sectors in Tech, such as CleanTech, DeepTech (AI, NLP, University spin-outs), TravelTech, FinTech, SaaS, marketplaces. Beyond Tech, they have provided their advisory services across a number of sectors including Chemicals, Infrastructure, Healthcare and Natural Resources.

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