Mergers and acquisitions: alternatives for Brazilian startups in search of unicorns

With more challenges in raising funds, Brazilian startups have started to find in the union with other startups an alternative to continuing expanding.

According to the latest study by the innovation platform Distrito, in the first half of 2022, while investments in larger startups and mergers and acquisitions (M&As) between companies and startups decreased, investments in early-stage ventures grew 21.5%.

Half of the 110 mergers and acquisitions transactions carried out in the period had another startup as the buyer.

Some examples of this trend are the deals closed between Nvoip and Mais.im, Woof and Toup, Vuxx and Box Delivery.

Besides having done mergers and acquisitions in recent months, the startups Nvoip, Woof, and Vuxx have in common that they are part of the portfolio invested by the angel investment association BR Angels.

According to the group’s founder and CEO, Orlando Cintra, the businesses were able to deal with the challenges of the current economic scenario and seize new opportunities to continue expanding.

“BR Angels does not believe in the alarmism of the lack of resources for Brazilian startups, which many preach in the ecosystem. It is indeed a time of more rationality, more analysis, and even more assertive choices of businesses able to receive contributions, but this also means more quality in the selected companies.

“The increase in mergers and acquisitions among startups shows that they are willing to improve their businesses and invest whatever is necessary to continue serving the consumers’ needs.

“In BR Angels’ portfolio, we have three that have already gone through the process, which we support and believe is beneficial for all parties involved in the end,” says Cintra.

M&As BETWEEN STARTUPS IN PRACTICE

More than helping in a conservative investment scenario, M&As between startups can strengthen the technological development of the services and solutions offered.

According to a survey by Olivia, a consulting company focused on organizational transformation processes, among the main reasons for doing an M&A are the entry into new markets (42%), the expansion of the customer base (19%), and the incorporation of new technology (8%), know-how (8%), and talent (2%).

A good example is the case of Nvoip, a startup from Minas Gerais in the telecommunications industry, which acquired the corporate communication platform Mais.im to offer improvements in external and internal communication to customers.

Now, the SaaS-based on voice communication and data intelligence APIs will also have a chat and messaging capabilities via WhatsApp.

The pet products marketplace Woof is another example of a startup that joined forces with another startup to expand the technology roadmap.

Recently, Woof acquired Toup; a business focused on software development.

The goal of the acquisition was to optimize the shopping journey for pet guardians, as well as assist small pet shops seeking to digitize Woof’s ecosystem.

The production of intelligence for the pet industry based on data generated in the online environment and physical points of sale was another decisive factor for the transaction.

“Toup has accumulated success cases in structuring digital products since its foundation in 2015. For us, this acquisition made a lot of sense, both for the cultural fit of the companies and for the possibility of Woof having an even more robust technology team.

“Our initial focus is improving Woof’s solution for Pet Shops, which delivers digital transformation and structural upgrade for retailers.

“Thus, we hope to contribute to local businesses, which represent almost 50% of the pet industry and need to be increasingly prepared to compete with large chains,” says the CEO of Woof, Caetano Altafin.

Another recent case of a startup that went through an M&A to become a more complete solution was Vuxx, a logtech that connects professional freight drivers with companies that need this service.

After being acquired by Box Delivery, an online platform for delivery intermediation, the business became a specialized service in the last-mile delivery segment.

“The merger with Box represents a new step for our logistics since we will embrace a new segment and the company’s great strengths, which are complementary to ours.

“We inaugurate a new phase towards uncomplicating the transportation scenario in cities, which has always been Vuxx’s premise and which is only intensified with this new heavyweight team,” says Vuxx’s CEO, Felipe Trevisan.

“Since the beginning, we have been looking for a business that could solve the pain of same-day and next-day deliveries.

“Vuxx had fundamental characteristics for this: purpose aligned with our values, extremely technical team, and complementary synergy of services we needed to deliver to some of our clients,” states Box Delivery CEO Felipe Criniti.

M&As AND THE GHOST OF MASS LAYOFFS IN STARTUPS

In the current scenario, a concern for entrepreneurs and employees of startups is the mass layoffs.

As pointed out by the website for relocation of technology professionals Layoffs Brazil, the dismissals in the sector exceeded the mark of 2,000 people only this year.

The movement mainly affects unicorns – startups valued from US$1 billion – such as Loft, Mercado Bitcoin, QuintoAndar, and Vtex.

Also on the list of mythological startups in the country, Frete.com is a unicorn that swims against the current.

After announcing R$300 million (US$58.7 million) available to invest in mergers and acquisitions of technology businesses, it chose InterSite, one of the largest software for managing agribusiness transportation, to debut the shares and improve the company’s operations and service.

Besides, one of the arms of the group, Fretebras, has more than 60 job openings.

“We know liquidity is tight for technology companies, which see the opportunity to accelerate growth in an M&A transaction.

“We believe that many really interesting companies will synergize with us, generating value for the sector as a whole.

“When the union of forces is greater than the separate forces, there are investment opportunities to be explored and, precisely for this reason, we believe that the moment is right for these actions,” says Frete.com’s CEO and founder, Federico Vega.

With information from Bússola