Merger and Acquisition (M&A) activity in Enterprise tech, e-commerce and fintech continue to be hot in the news in the last few weeks.

I’ve spoken and written, in the past, about the pivotal role of M&A and why founders and leadership teams should not underrate this tool in a company’s journey of growth. I have attempted to share my experiences in M&A in the context of recent activity.

In Asia, we already have seen a promising M&A trend in Q1 of 2022 (as an example, PhonePe acquired GigIndia). In Singapore, Nium, a fintech unicorn company, acquired cash management and alternate payments firm soCash.

M&A as an integral component of progress

When I acquired a company in the startup world, the objective was to access technology to build customer experience and add layers of offerings, with speed being the essence.

Broadly speaking, the reasons for M&A are to enhance the product-market fit to get the next round of financing, growth may start getting stalled which may not allow the company to be fit enough to become a public traded company (Nium is planning its IPO in the next 12-18 months) and when the buyer has approached the target company and the offer is compelling enough to target the company’s investors (here, Vertex is a common investor in socash and Nium).

For an M&A deal to work, the discussion on integration post-merger and aligning the combined value proposition to customers and partners on both sides may have been ongoing for a while now.

Such M&A efforts would need to make commercial and strategic sense, first, for both the parties before going ahead with any M&A discussion.

Embedding finance

There are small and large businesses keen to enter the fintech industry and offer financial services. At a broader level, this deal between soCash and Nium is about embedding finance within the customer experience.

Specifically in this deal, it lowers the costs for Nium to process transactions by embedding alternate payments method offering to its small merchant businesses and accelerating their revenue growth. It allows Nium to move to an adjacent market.

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soCash allows Nium to have access to licenses, technology and thousands of collection points for its cardholders and wallet holders to withdraw instantaneously in Singapore and beyond.

This allows Nium to widen its business model beyond the issuance of prepaid or debit cards to customers. For socash, it allows its offerings to expand the customer segment and go beyond the shores of Singapore.

Expansion to emerging markets

I recognise the value of physical presence in any digital journey particularly in emerging markets. It is seen across industries that integrating alternate payment methods, including cash, allows revenues for merchants to increase revenue by 30 per cent to 40 per cent.

Also Read: Nium adds US$200M more to its war chest to become Southeast Asia’s latest unicorn

For instance, in LATAM, payment methods like PIX and payment slips are alternate payment methods driving more revenues for merchants than cards.

As these payment methods have local interfaces, merchants on these platforms can expand to new geographies and monetise their offering faster and spend less time on compliance requirements related to payments in these new geographies.

All about timing when it comes to shareholding value

The timing of this M&A deal between soCash and Nium is crucial. It allows the teams to work together to monetise this combined offering for at least a year before Nium sees its impact on valuation, and ring the opening bell on the stock market.

While it is simple to state that this deal enhances the shareholder value, for the founders, it is a much more complex calculus.

The personalities and backgrounds of the founders, on both sides, trigger motivations which become an important element to iron out the details of the deal. Calculating the expected chance of higher valuation or risk-adjusted outcomes by both sides is important for saying yes to the deal.

If this is not a pure cash buyout, then the soCash team will expect to see the value of its shareholding multiply faster by being offered shares in Nium than what they would have expected if the team had decided to be independent.

Post M&A and during integration, my experience shows that cultural, political and strategic elements play a key role in monetising the combined offering. The integration process would need to embrace challenges.

Integrating philosophies of product teams of both the companies, designing new incentive schemes for sales teams or continuing with the incentive schemes of either the acquirer or the acquired for the combined organisation, addressing the concerns of prioritisation in allocating resources to acquired business are some of the key challenges.

In one of the M&A deals that I was leading and involved around 5000 employees, I had advocated keeping sales and customer-facing functions separate. The products from the acquired businesses required different sales processes.

The sales team is used to sell to particular buyers/customers where the main discussion is around financials and these customers have different adoption curves and may find it difficult to sell new or challenger products to these buyers. It will be interesting to see if the teams are kept separate or if some functions of soCash will be merged.

In other situations, it is important to clarify the key metrics upfront. This helps the leadership teams of both the companies to focus on revenue growth and help capture new value and not be compelled to focus on penny-pinching measures (like costs savings will be the only metrics).

Every M&A experience is unique and situational. I hope to see speed and urgency in rolling out the combined offering if this M&A deal has to create and capture value.

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