SADA Chief Financial Officer Lusine Yeghiazaryan spoke to Armenian News-NEWS.am about startups, mergers and achievements, problems faced by Armenian startups, as well as the recent acquisition of SADA.
Most startups have to choose the further path of their development at some point. Either they are bought by big companies, which we call M&A (Mergers and Acquisitions), or they do IPOs. Can you describe what M&A is?
There is a big M&A trend in the world, it is very important for corporate strategy. Recently, the number of interesting startups in the world is growing. Large and international companies are always monitoring and studying what interesting startups and companies there are so that they can accelerate their growth and make investments. Startups that are very powerful can enter the international market and make an IPO, but the M&A trend is very strong and accelerating.
When a large organization buys small companies, what does it try to find in them and get together with those companies?
Large companies look at several topics, the first being intellectual property, to understand how long an investment can last when it can be marketed. The second is acquisition talent, which is very important as companies try to consider whether it is possible to acquire that talent in a natural and organic way. The third is to enter the market. Suppose a company comes to Brazil, China or Australia or another country where the market is very strong and there are many opportunities. I have listed three, but there are many factors that companies consider important in order to invest through M&A.
What are the advantages of being bought by a large organization for a small startup? What are the advantages over an IPO?
IPO is a very complicated and lengthy process. Out of thousands of startups, perhaps one can enter the international IPO market. An IPO is a very complicated and complex process, you have to have investments to enter the market and attract international investors. The likelihood of good startups being able to set up a program and get good results for M&A is high.
More for acquisitions than mergers because mergers are usually for those companies that are equal to each other, similar in size and revenues, or both have an interesting balance sheet. Acquisitions happen when large or international companies usually go above the small company, given the above factors.
This is a big opportunity for small companies in terms of market entry. They can integrate into the mechanisms and processes of that big startup company. Usually, if it's all well-programmed, there are great opportunities for startups, and in general, the partners on both sides see a very good result.
Isn't there a risk that this small company could, in some sense, lose its products?
Undoubtedly there is. This is a very important question because there is always a risk.
When a large company is looking at a startup, and the startup is just as important to understand who wants to buy it and where they want to go, what the purpose of the acquisition is, and what risks they are taking. If their initial vision has to change, that is already a big risk, they have to understand that and in a very specific way either accept it or find it unacceptable.
Can they always assess these risks before they buy?
It's hard for startups because usually the detailed research is done through a big company. Startups tend to think they don't have that big power, but I would advise them to definitely ask what will change for them and their teams, what the tactics will be, and how they will be affected by the change.
Big companies usually try not to make aggressive and dramatic changes, especially at the beginning, so that the startup integrates naturally into the team. But over time, of course, there will be changes if you were a startup of 50 people and now you've been bought by a company with 10-15,000 employees.
Should a startup only ask questions, or can it also ratify it all to insure itself against some problems?
Here, of course, those relevant professionals who can assess risks and opportunities very well usually help. It is necessary that we also talk about the overall financial ecosystem, which is very important all over the world. It helps and accelerates all these kinds of issues so that both sides understand what is going on during this process, because they usually focus only on price and IT issues, which actually solve everything in a very narrow way and can lead to big problems.
SADA, the company you represent, recently had a successful M&A experience. Tell us about it, which company did you acquire and why?
We acquired our partner in India. Our office was set up in December 2021 - very successful and accelerated. We had known them for a very long time, which helped a lot. We would like to have that experience in Armenia as well. In Armenia we can nurture this company and make investments. For us, this company is an acquisition talent, which is very important in the Indian market. What is important is their culture with our company, our relationship, our way of thinking, they worked with SADA for a long time, they understood us well and we knew them. That helped a lot to make the acquisition a success.
Did it end up changing a lot of their work?
We tried not to make categorical, big, negative changes. We valued the culture that they had created. They were very familiar with our environment. I think the changes they felt were positive-the infrastructures of an even bigger company, the mechanisms, processes, funding and more, so everything accelerated and gave them more stability. We're very sensitive to big negative changes, we try not to approach these issues categorically.
How interesting do you think Armenian startups are for large organizations and do they often buy Armenian startups?
The more people learn about Armenian startups, the more opportunities multiply and grow, of course. The problem of Armenian start-ups is that they are not yet well-known in the international market, and the competitive relations are very big for companies of all countries. Every year hundreds of new startups appear, which have to compete somehow for financial opportunities and M&A. If one understands what is available in Armenia and spends time and everything to study the local ecosystem, he will understand that opportunities abound. This also raises the question: what is the Armenian startup ecosystem doing to quickly create a brand for the international market and become better known?
What does the Armenian startup ecosystem have to do for this?
Of course, the number is already helping. Many venture capital funds are coming from abroad, there is interest. Recently there are a lot of M&A companies that had an opportunity to get acquainted with Armenian startups, but this is a new initial stage and it is very important that it is accelerated, strengthened, there is thinking at the state level how we should strengthen Armenian startups and what opportunities exist to develop this, for example in California, Silicon Valley, New York, London, Hong Kong, where we have our contacts and also we can use diaspora connections. But beyond that, let's go to a higher level, for larger investors. In the case of several large acquisitions, an Armenian startup can appear on the M&A map, which will give great opportunities for development.