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By Rodolfo Fücher
Several studies and surveys point to a strong trend towards the maturation of entrepreneurship in Brazil, accelerated by the digital transformation movement and which brought the “global startup fever” as its baggage. And, more recently, exponentialized by the pandemic, leading to a desperate race for innovation as a way to ensure the survival of the business. Perhaps the title of this article hints at the answer to a simple question: what is the shortest and fastest path in this race for innovation, with less risk? And if you're not fast, maybe your competitor is.
Two surveys by the GEM (Global Entrepreneurship Monitor) carried out with the support of the IBQP and Sebrae, one from 2001 and the other from 2019, demonstrate the evolution process of entrepreneurship in Brazil, which came out of a rate of 14.2%, where for every 100 Brazilians , 14 were entrepreneurs in 2001, for the adult population rate of 38.7% – an increase of more than 270%. Another study that makes clear the favorable moment for entrepreneurship, but specifically for startups, is the data presented in relation to investments in startups in Brazil, by Distrito Dataminer, pointing to a growth of 17% compared to 2019, reaching the figure of US﹩ 3.5 billion in 2020.
This significant growth in the entrepreneurship market ends up generating a huge market for mergers and acquisitions, which moved US 52.1 billion in the first half of 2021, surpassing the US 45.9 billion generated during the entire year of 2020, according to Dealogic , which collects data from the financial market. A global study by consulting firm EY on corporate divestment, points out that 95% of businesses that were targeted for acquisitions admit that they should have sold the business before.
These data further strengthen the M&A trend in the market, even as an exit option for investors. Given the growing volume of investments in startups, M&A becomes a faster exit for the investor, instead of waiting 10 years, on average, for an IPO.
This trend is confirmed by a recent survey published by ABES in partnership with BR Angels and Solstic Advisor, referring to perceptions about mergers and acquisitions in the current scenario of the Brazilian market. She pointed out that 86% of the interviewed entrepreneurs see mergers or acquisitions as a way to grow the business, and 50% intend to carry out some transaction in this regard in the next 12 months.
The same study also revealed the market's need to adapt its business to the new reality, given the challenges of the pandemic, strengthening the scenario for mergers and acquisitions, especially in the IT sector, which showed that 50% increased investments in this sector. Of these, 85% invested in software, such as SaaS and Cloud, 40% in hardware and equipment and 39% in services, such as maintenance and installation.
The technology sector should continue to stand out, according to the ABES study in partnership with BR Angels and Solstic Advisor, and should be responsible for 66%, 5.7% e-commerce and 5.7% logistics. The study also pointed out: that 36% of respondents intend to invest between R﹩ 1 million and R﹩ 5 million in acquisitions; 17% plan to invest between R﹩ 5 million and R﹩ 15 million and 9% consider amounts between R﹩ 30 million and R﹩ 50 million. Around 4% stated that they should contribute more than R﹩50 million.
Another conclusion is that efforts aimed at mergers and acquisitions should gain prominence over the next two years. 24% intend to implement a Corporate Venture program to invest in or acquire start-up external businesses. However, 75% still does not have a structured M&A area in the company.
When carrying out an M&A transaction, around 64% assess the business model of the company to be invested or acquired. In addition, executives also attach importance to scalability, innovation, financial health, team and leadership, as the main points to be analyzed in the process.
It is interesting to analyze the reasons that the survey pointed out as the main motivators for considering a merger or acquisition operation: first, there is the possibility of increasing market share with about 43%, followed by the need to incorporate technologies with 36%, accelerating the transformation digital and talent inclusion with 21%.
Faced with a market whose dynamics of digital transformation was enhanced due to the pandemic, the search for innovative and disruptive solutions, considered a competitive factor, became a matter of survival. Startups became the main source of these solutions, as well as the need to join forces to face the challenges of this environment. On the other hand, the eagerness of investors to speed up the return on their investments (exit) makes mergers, M&A, the safest and fastest way, so as not to be defenestated from the market by a more agile competitor, eager to occupy a space .
*Rodolfo Fücher, president of the Brazilian Association of Software Companies
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