For tech entrepreneurs eyeing an IPO in 2024, that uncertainty could make things tricky. But IPOs aren't the only game in town. With European mergers and acquisitions (M&A) seeing a 38% increase in the first half of 2024 and tech giants ramping up their acquisitions of emerging players, more early-stage tech founders will be looking to M&A in the coming months.

For startups, a well-timed M&A offer could unlock new markets and fuel growth, but it’s not without its risks. Take the example of cybersecurity startup Wiz, which turned down a $23 billion offer from Google’s parent company, Alphabet. While eyebrows were raised, Wiz’s decision to walk away highlighted a key truth: just because the price is right, it doesn’t
mean the deal is.

The paperwork may seal the deal, but success often hinges on the post-acquisition integration process – taking one and one to make a harder-hitting three. There are, however, common considerations and best practices I’ve seen when advising stakeholders in early-stage tech acquisitions.

The complexities of weighing up M&A

Beyond the financial upside, founders must think about what life will look like post-acquisition. Their role will almost certainly change, and they need to be sure of what their new position entails, how much influence they’ll have, and what resources they’ll control. If the deal doesn’t give them enough say or budget, they must consider carefully whether their vision can still thrive under the new ownership.

To ensure their vision endures, founders should look beyond financial due diligence when evaluating an offer. If the buyer has a history of M&A activity, founders should explore how previous integrations influenced the experiences of other founders and teams: Were their strategic goals achieved? Did they receive the promised autonomy and support? Did the buyer genuinely embrace the founder's vision, or were they simply chasing a short-term boost to their topline growth? This kind of firsthand insight helps founders gauge whether the potential new partner truly aligns with their values and future goals.

Winning buy-in with a vision-driven narrative

Once a founder decides to accept an acquisition offer, the next hurdle is getting their current investors on board. Some investors may hesitate, particularly if they believe the company has greater potential on its own. From their perspective, the deal either means cashing out and stepping away from the company's future entirely or becoming shareholders of the new parent company instead of the startup they’ve come to know and understand.

The founder and their team must be prepared to articulate a compelling narrative to investors to secure their buy-in. This may entail educating them about the parent company and communicating why the deal makes sense, not just in financial terms but as a strategic move that aligns with the company's long-term trajectory.

Laying the groundwork for collaboration

In any M&A scenario, founders must ensure their employees stay engaged and, critically, make sure they don’t head for the exit door. While departures might not happen immediately, they often occur in the months that follow. Research shows almost half of employees leave within a year after their company is acquired, with that number soaring to 75% after three years.

This often stems from early M&A negotiations placing too much emphasis on the price and management structures, while neglecting crucial aspects like what the day-to-day operations of the combined entity will look like, how to unify two teams while preserving moraleand whether the right incentives are in place for employees to thrive.

The premise of solely prioritising the valuation is misguided. McKinsey found that companies that prioritise culture management in the integration planning stage of M&A are more likely to capture cost and revenue synergies – highlighting the importance of culture.

The key to avoiding these pitfalls? Start building bridges early. Before the ink is dry on the deal, create opportunities for teams from both companies to work together. An effective approach can include facilitating test runs for the two teams to spend time collaborating before they become one company. This is a practical way for managers to understand and contrast ways of working so that any potential issues or clashes can be addressed ahead of time, laying the foundation for a smoother integration and a stronger partnership.

Putting integration on a footing for long-term success

Even with early collaboration in place, a successful integration process requires sustained effort. In my experience, cultural alignment must be actively nurtured. In the tech industry, where companies are deeply 'customer-obsessed' and prioritise product innovation, new employees need more than awareness of company values and year-end targets. They need a thorough understanding of customer personas and the product roadmap to fully align with and contribute to the company’s mission.

A successful integration process isn't just about the actions taken immediately before or after the deal is executed – it's a long-term commitment to bringing out the best in both teams under one roof.

Beyond the initial steps, it’s vital to keep the momentum going with continuous feedback loops allowing teams to adjust as needed. Leadership must actively embody and champion the new company’s values, setting an example for the entire organisation, while crosscompany development programmes, like joint training and mentorship, can play a key role in blending cultures.

Effective communication and shared goals help in keeping teams aligned and motivated, while integrating HR practices that reflect the new culture can create a more collaborative work environment. A thoughtful long-term cultural roadmap ensures the integration process evolves smoothly. By focusing on these sustained efforts, companies can transform any merger or acquisition into a thriving success story.

The surge in European M&A presents an enticing opportunity for tech founders. With the right deal, startups can accelerate their growth and expand their horizons, but without a carefully thought-through integration process guided by the right priorities, the chances of M&A succeeding diminish. In the end, a successful acquisition or merger is about more than just closing the deal – it’s about aligning two companies under one shared vision and building something truly greater together.

This article originally appeared in the September/October 2024 issue of Startups Magazine. Click here to subscribe