Food & Agribusiness

Nine Steps to Success for Acquirers Targeting Agritech Start-ups

Conducting proofs of concept in agriculture can take time. Success can depend on the season, soil type, amount of rainfall and many other variables. Acquirers may need to wait months or even years to judge whether a target has what they are looking for.

Whether companies are looking to buy product IP or next-generation internal processes and operational innovations, it is critical to understand your target’s operating model and key competencies. If you cannot bridge the gap between different skills and ways of working, the deal will fail.

When larger companies acquire smaller ones, the target’s salespeople often leave because the acquirer already has salespeople. Acquirers need to keep the talent that has taken the target’s idea to market. It may well prove hard to replicate.

Acquirers tend to concentrate on the core asset as the source of value for the transaction, and that is a mistake. They need to recognize that they are buying an ecosystem: the start-up’s culture and behaviors, its processes, its employer brand, its approach to R&D and so on.

Start-ups often work with next generation, experimental technology that sits in regulatory gray areas. Regulations and laws differ from one country to the next. Bringing experimental technologies to market raises complex questions and will require a range of piloting sites to allow for rules in different regions.

This is becoming an increasingly regulated area as well, so understanding how the start-up’s innovation interacts with environmental concerns such as water balance and biodiversity issues will also be critical. Are there incoming ESG reporting requirements that must be factored in?

The incumbent needs to understand how the start-up’s proposition fits with its own across every dimension, from ESG disclosure obligations to data requirements or local and regional market regulations.

This is true before the acquisition and after it closes, not simply to manage integration issues such as culture or risk management, but also to ensure everyone understands the expectations around the time horizon for commercialization, for example.

Is the acquirer seeking a minority stake with a view to exit once the start-up has scaled up, or are they intending to integrate it fully into their operations? If so, they may prevent the start-up from working with other players, which could hugely reduce its growth opportunity. That could have a big effect on valuation.