RIO DE JANEIRO, BRAZIL – The speed of digital transformations, spurred by the Covid-19 pandemic, has produced a culture of urgency within companies in search of innovation. In order not to fall behind and not lose ground to the competition, many of them, such as Magazine Luiza, Via, B2W and Alpargatas, have been shopping around looking for solutions to everyday problems.
The preference has been for startups, new companies with more agility in product development and qualified labor.
In the first 4 months of this year alone, the number of startup acquisitions grew 120% – a record for the segment. There were 77 deals compared to 35 in the same period last year, according to data from Distrito innovation platform. The trend began to intensify in the third quarter last year, when the race for digitalization increased to mitigate the impact of the crisis. To get a sense of companies’ eagerness, the number of acquisitions between January and April this year was higher than the whole of 2019.
“The pandemic accelerated the transformation of companies faced with a sharp change in consumer behavior. They realized they needed new channels to serve these customers,” says Distrito’s co-founder Gustavo Gierun. According to him, acquisitions of startups have proven to be the fastest way to shorten digitalization time.
“Every day we must decide whether to build the solutions or look elsewhere,” says Magalu’s vice president of business, Eduardo Galanternik. In the first 4 months, the strategy was to search the market: the company bought five startups and is still looking. “We are looking for businesses that will solve our problems in the areas of technology, logistics and payments,” says Galanternik, pointing out that the goal is to keep up with the new habits of increasingly connected customers.
Other retailers have followed Magalu’s strategy. This year, the sale of startups with solutions focused on the sector ranked first in mergers and acquisitions, with 14% of operations, according to Distrito. In 2020, fintechs were in the lead, with 16%, and retail in 4th place, with 11%. According to Gierun, companies in the sector have realized that advances in services, operations, customers and in the logistics chain will be key to growth.
The Via (former Via Varejo) group has been looking for startups that will enhance its services, such as the purchase of Asap Log logistics company. In less than a year, it managed to increase its number of 24-hour deliveries from 28% to 42%, and in 48 hours from 47% to 65%.
In April, Via bought fintech Celer, which will complement the work of another acquisition: BanQi digital bank, with 2 million customers. “It is unimaginable to do that at home at the same speed.” To him, the acquisition has an immediate impact on results.
The speed of change in a world undergoing severe disruption is bolstering the drive to buy startups rather than start a project from scratch. “Nowadays technology becomes obsolete quickly. While a company develops a solution, others emerge and surpass the others,” says PwC consulting partner Leonardo DellOso, leader of the mergers and acquisitions area.
In addition to the digital urgency, the scenario has been favorable for acquisitions. With declining interest rates and going public on the stock exchange, there is a lot of money in circulation that needs to be allocated somewhere, says Flávio Batel, founding partner of Solstic Advisors, mergers and acquisitions consultancy. “In the past three weeks alone, we’ve received 5 new deal orders that involve seeking solutions for traditional companies.”
Most of them have created areas and funds dedicated to the search for market opportunities, as is the case of Tivit, Porto Seguro and B2W, which set up IF – Inovação e Futuro (Innovation and Future). This area is in charge of the acquisitions of companies from Universo Americanas (Americanas and B2W). Since January 2020, the company has bought 8 startups to enhance the group’s services.
The most recent acquisition was Nexoos, a platform connecting borrowers with investors. “The strategy is to engage in new frequency businesses, new verticals, and those with teams and knowledge to accelerate our work,” says IF’s director, Thiago Barreira.