The winds of startup purchases consolidation trend arrives attenuated in Spain, a trend that could accelerate if there are companies with problems to finance themselves.

It's time to shop in the start-up market. Faced with the withdrawal of investments due to the macroeconomic scenario and the difficulty of finding funds willing to assume the valuations that were being paid until the end of 2021, in the United States there is already talk of a wave of mergers and acquisitions in the sector.

"M&A (mergers and acquisitions) is going to go up a lot in the startupland," Matt Murphy, a partner at venture capital fund Menlo Ventures, told the source.

"There are people making their shopping list," confesses another fund that has already been contacted by several large technology companies in Silicon Valley, where some funds admit that there are buyers "smelling blood" of start-ups in distress.

Startup purchases consolidation trend

That dynamic, although attenuated, is reaching the other side of the Atlantic.

A report by Sifted through Dealroom data reveals that almost a hundred purchases or mergers (88) have occurred in the last month, of which 9 are in Spain, some really signed before — such as the purchase of Clicars by Aramis Group, from the Stellantis automobile group, which was agreed since 2017—, but others very recent.

Among them, the startup of micromovilidad Reby by the fund Canadian House of Lithium, which has put on the table $ 100 million (94 million euros, at current exchange) to be with her; of the edtech EducaEdu and eMagister by the private equity fund Miura Partners, that between one and another operation has spent 150 million; or the startup protection parental Qustodio for the Australian company, Family Zone (50 million).

All this is without counting with the greatest deal of the year, signed with the chimes of the end of the year but that will have to close during this 2022, the purchase of Glovo by Delivery Hero in a year, tremendously heaving to the sector of the delivery, particularly in the stock markets, where the price of the German giant has fallen to approximately 40% of the levels with which kicked off the year (around 40 euros, compared to the 100 that took the grapes), although the first quarter will be well with your business.

Startup purchases consolidation trend record 2021

After a record 2021 in Spanish startup exits — as company sales or IPOs are called, although in Spain the former tend to occur more than the latter, except in very particular cases such as Wallbox or Flywire —, with 68 operations of this type, according to data from the Startup Observatory of the Bankinter Innovation Foundation, the first half of 2022 already accumulates 36 transactions.

"There will be more corporate operations, what I don't know is how much it will be in cash and how much in shares," says a protagonist of one of those operations, Pep Gómez, founder of Reby, in a conversation with the source Spain.

The environment in which this increase in transactions may occur has to do with a macroeconomic moment in which the rounds are complicated for startups that, even though there are still funds in Spain that have raised capital in recent months, now must face longer processes and lower valuations.

"I'm seeing it in some operations, more adjusted valuations for sure, although there are also funds that have raised capital and have to start deploying," David Miranda, a lawyer at Osborne Clarke law firm, who works in many operations of emerging companies in Spain, tells the source.

Startup purchases consolidation trend statement

Mario Teijeiro, from Deloitte's StartmeUP startup support platform, believes that the main change in investors' point of view has been emotional.

"Although the rational part was studied a lot, there was always an emotional one that made you want the due diligence to ratify your investment idea (..."We are seeing in Spain a valuation correction of 20%, still not as heavy as that of the United States," he explains, although he insists, like Miranda, that there is a lot of money raised that has to be invested.

In some companies, it's no longer just a security issue. Raimundo Burguera, co-founder of Ritmo, a company specialized in financing startups, particularly e-commerce, with a model based on revenue share (loans that are returned through a percentage of sales), admitted at the South Summit that many of his clients were already noticing the downturn.

"We see a lot of changes in the market, we have a lot of data from thousands of ecommerce that we are specialized in, and none of them are having the sales data from the pandemic, they are returning to the data from 2019 and before. The problem is not growth, but cash flow and survival," he explained during the forum held at the N@ve de Villaverde (Madrid).

Startup purchases consolidation trend increase?

Can this lead to an increase in purchases? In that same forum, the co-founder of the proptech company Tiko, Ana Villanueva, saw it likely. "There will be consolidation, we are already seeing it, for companies that do not have cash or positive EBITDA. We always look at the market, but it is not our priority. But companies with solid finances I think will come out of this process strong," he said.

This soundness of the accounts will be a key element to have the upper hand in these operations, adds Alberto Tornero, partner responsible for the High Growth Companies Area of PwC.

"I don't think there are going to be good projects that are good opportunities because there is no investment, because the investment is going to come from one place or another. Another thing is that there are companies with doubts to capture that they can be the object of purchases, " he says in statements.

Like all market movements, there will be losers and winners. Of the first, the robot portrait is the one already mentioned: companies with cash problems, which have fallen short in financing or that were planning to raise capital and cannot do so under the desired conditions.

But buyers are much more varied. Firstly, there are the dynamics of consolidation of maturing markets in which the strongest competitors end up seeking more share through corporate operations. In other words, buying from your competitors.

Startup purchases consolidation trend comments: "In mergers, something is taking place that perhaps coincides with the prudence movement, but also responds to the maturity of an ecosystem. A mature market tends to consolidate; if there is a leader in a category or a sector, it is logical that he wants to grow inorganically by acquiring companies in the same sector," says Mario Teijeiro, of Deloitte StartmeUp, who sees the M&A market "more active than ever".

David Miranda also sees opportunities as likely to be generated. "In the coming months there are going to be companies that acquire competitors at very low valuations," he says. In sectors such as ultrafast delivery this is already happening (the German Gorillas is looking for buyers for its Spanish business), points out the expert, who also sees a possibility in fintech.

On the other hand, there are private equity funds, which can take advantage of the moment to capture companies in need of financing and with good growth prospects, although Miranda considers that in this case they will be more "investments taking advantage of valuations", although he does not rule out "opportunistic acquisitions with companies in financial stress".

That same feeling that "startup purchases consolidation trend and market opportunities" are going to occur is what Alberto Tornero, from PwC, transmits. "If suddenly there may be any doubt regarding some capital problem, some company may have to buy or sell. We think we must be vigilant because there may be opportunities," he underlines.

Another option that Mario Tejeiro points out is the case of start-ups with businesses in good condition that, once they have reached a certain point of growth, are looking for an industrial group that will buy them and with which to take the next leap.

"Mature companies come to us, they have passed the start-up hype, they have been developing for 8 or 10 years and they say, I would love not only to have the validation of the market but an industrial group that buys me, and they give us a mandate to look for one," he explains. Software companies, especially for companies (SaaS), industrial or biotechnology topics are the ones that are looking for this way the most.

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