Recent exits in the Latin America startup ecosystem (all of which have been acquisitions to strategic acquirers) have highlighted the profiles and motivations of acquirers.
In the third quarter of 2018, Walmart announced the purchase of Cornershop and Chilean retailer Falabella acquired Linio. These exits serve to strengthen the investment thesis for early stage investors investing in Latin America. They also provide founders with insights on potential exit paths – something potential investors will be sure to ask about.
Below, I have attempted to create a framework for LATAM startup exits. I grouped acquirers by geography and business model profile. The fact is, IPOs are hard, and out of reach for most founders in Latin America. The quarterly PECAP report for Peru startups exits and news articles in Latamlist and LAVCA where my sources for transaction information. From these examples, I identified four profiles of strategic acquirers in Latin America.
Profiles and motivations of startup acquirers in Latin America:
Second, I have grouped some recent startup exits into these categories. In the table below, the logo of corporate acquirers is displayed along with the logo of the local startup that was acquired.
Examples of startup exits in Peru and Latin America (by acquirer profile):
There are other examples that could be placed into boxes above. Another Peru startup exit, Busportal’s sale to Indian startup Red Bus, fits into the same category as Cinepaya. I would put the recent purchase of ComparaMejor into the same group as the Adondevivir exit.
Here are some takeaways:
- None of the startups mentioned had reached break-even prior to exit.
- Attractive unit economics and potential value contribution are more important to potential acquirers than profitability at time of acquisition
- Startups that focus on one core aspect of a supply chain or distribution channel are attractive acquisition targets
- Within a certain acquirer business model profile (traditional or disruptive) global or non-LATAM players tend to pay more for startups, providing founders and investors higher valuations at the time of exit
- Startups that achieve a regional presence tend to achieve higher valuations at the time of exit than single-country startups
Some additional points to consider for future exploration:
- Will B2B startups face different exit path dynamics? (most of the examples above are B2C business models). One path is KIO Networks, which has opted to remain private and distribute dividend rather than be acquired.
- How does entering the US or European market affect Peru startups exit path?
- What will happen when strategic acquirers from Asia turn their attention to Latin America? In one example, Didi recently acquired ride sharing startup 99 in Brazil.
I hope this framework serves to help founders and investors identify motivations of potential acquirers and determine how different exit paths can effect a startup’s journey and end result.
Thanks to Cristobal Perdomo of Jaguar Ventures for his insights in contributing to this post. Cristobal formally worked at Navent.