Acquiring the Future: The Rise of Startups through M&A in Latam

The growth of startups in Latin America has been on the rise in recent years, and one of the key drivers of this growth has been the acquisition and merger of emerging companies by larger, established companies. Until recently, startup’s scaling in Latin America had been mainly driven by large investments in marketing, and expensive distribution channels. However, the new reality has shifted the focus for many founders to seek profitability and build a more robust business model. Mergers and acquisitions are now becoming a booming path for startups to grow their product offerings and complement their go-to-market strategies faster and more efficiently. The acquisition of TeFacturo by Mendel in Mexico earlier this year is a testament to this trend.

The TeFacturo acquisition by Mendel, a leading provider of electronic invoicing solutions in Mexico, highlights the growing interest and value that is being placed on startups in the region. These startups are addressing pressing problems and offering innovative solutions that are not only relevant to the region, but also have the potential to impact the world as a whole. Complementary products and technologies not only benefit the acquiring company, but also benefit the customers who receive an enhanced and improved product in a shorter term and leave room for the company to focus on providing a better and faster service to its customers. Mergers like this one exemplify a great way to strengthen product value to customers. 

For startups, these acquisitions and mergers offer a wealth of opportunities. They provide access to much-needed capital, resources, and expertise from established companies, enabling them to accelerate their growth and expansion. On the other side of the coin, acquisitions are now a more realistic path to exit for many startups that are left with no funding. In turn, larger companies benefit from the acquisition of innovative technology, talented teams, and entry into new markets.

However, this growth is not without its challenges. For startups, the acquisition process can lead to a loss of independence, corporate culture, and the ability to innovate. It is, therefore, important for startups to consider the implications of any acquisition or merger and work to preserve their identity and ability to continue to grow and innovate. For instance, the new startup reality and valuation adjustments due to the global economy are pushing more and more great companies to explore new ways of showing traction and revenue growth without the risk of investing time and runway months into growing these metrics. Clearly, the right M&A assessments and implementations are those that are going to show profit in the short and long term for companies choosing this strategy for growing and scaling. 

Additionally, the acquisition and merger process in Latin America is not without its challenges. The region still faces regulatory and cultural barriers that can complicate transactions and delay the process. These barriers include a lack of clarity in merger and acquisition laws, limited access to financing, and a lack of a corporate culture in the region. It is our view that from  the very beginning, founders have a mindset for growth that enables their companies to expand through M&As. It may not be as straightforward as it sounds because in a startup day-to-day we may get lost in the most short term pressing issues rather than thinking on how our product’s code may limit a future acquisition in the future, or how our culture values and hires can affect the results of a merger. 

Despite these challenges, the growth of startups in Latin America through acquisitions and mergers is a positive trend that will continue to drive economic and technological development in the region in the coming years. According to Bank of America, VC funding in the region decreased 60% from 2021 to 2022, and with this phenomenon many startups will dry out their cash and will be left with the only clear solution to “survive:” getting acquired. As these opportunities start to show up, we’ll see a huge consolidation in every industry and niche and giants will start to form. The acquisition of TeFacturo by Mendel is just one example of how the region is becoming a hub for innovation and growth, and how the acquisition and merger of startups is contributing to the development of the region as a whole. 

In conclusion, the acquisition of TeFacturo by Mendel in Mexico is a positive sign for the future of startups in Latin America. The growth of startups through acquisitions and mergers offers a wealth of opportunities for both startups and established companies, and is contributing to the overall development of the region. As the region continues to grow and mature, it is likely that we will see even more of these types of transactions in the coming years.