Startup CXO

Chapter 21Mergers and Acquisitions (M&A)

Buy‐Side

Once a startup starts to find their product‐market fit and understand the clear drivers of revenue, acquisitions become a real possibility as a way to quickly grow the business. For a CFO, the main tactical efforts will include the financial merger model, the price, and how to pay for it, and managing due diligence. Primarily the CFO is the key partner (and sometimes voice of reason) for the CEO, who for startups, almost exclusively drives the buy‐side M&A efforts. As the company scales, you might hire someone to focus on M&A and the CFO becomes a key partner.

The Merger Model

The merger model is to help give your company a clear view of the before and after picture of the merger. The easiest way to do this is to compartmentalize the analysis. First, create a base model of the two standalone companies pre‐merger. This will include the actuals and forecasts. Then create another that merges the two, and some work that shows cost savings/synergies from the merger, and impacts on revenue, including the key drivers. Typically, that will include things like improved pricing, win rates, and client retention but could include a number of items. The key thing is to make sure the metrics that are driving the decision to make the merger are clear. At that point you can provide the CEO and Board some important financial metrics like payback period, total invested, and what certain metrics need to be for you to feel good about the decision. ...