Apr 14, 2023

Colombian unicorn Rappi made its biggest acquisition so far by buying Box Delivery, a Brazilian startup that was its competitor. The intention is to unify the fast delivery offer of both companies in Brazil and face the strongest rival there: iFood. Sebastián Mejía, the co-founder of Rappi, said in a statement that “there is a lot of room for growth in the Brazilian delivery [sector], and we are committed to this market, which is very important for us.” Although Mejia assured that M&A (mergers and acquisitions) are not in Rappi’s DNA, this is not their first acquisition. In 2019, Rappi acquired Mexican payment startup Payit, a platform that facilitates collections and payments through blockchain to protect all transactions made. The goal was to enter strongly into its fintech business. In June 2020, the unicorn, valued at $5.4 billion, made its first acquisition of a Brazilian startup: Avocado, an online grocery retailer focused on providing delivery services. The goal of these types of M&A deals is to “acquire innovation, new customers, expand internationally or even also acquire or develop digital skills that they don’t have,” explains Enrico Robles del Rio, director of intelligence at Endeavor Mexico. But these objectives are not always achieved. In Latin America, some startups that have acquired others have had unexpected results especially immersed in an adverse context for startups in advanced stages. Examples include Casai, Jokr, and Betterfly. M&A transactions among startups in Latin America have increased, mainly in Brazil and Mexico, the most mature entrepreneurial ecosystems in the region. In 2022, M&A activity peaked with 55 Latin American startups acquired or merged, according to the Insights: Venture Capital and Growth Equity Ecosystem in Latin America study by Endeavor and Glisco Partners. Acquisitions that did not turn as expected Mexican short-stay startup Casai, whose business model is similar to Airbnb’s, acquired two Brazilian startups to settle in the largest Latin American market in 2021: Q Apartments, to tap demand for short-term corporate rentals, and Roomin, with which it snapped up 100 apartments in strategic Brazilian cities. Casai’s goal was to double its portfolio in a few months. Then, in April 2022, Casai acquired Loopkey, another Brazilian startup, and in August of that year, it merged with Nomah, a startup acquired by the Brazilian startup Loft. This last operation was carried out to strengthen itself, as the Mexican startup was going through financial problems, which led it to cut staff in July and again in December 2022. In early 2023, the Mexican proptech announced its exit from Brazil. None of the Brazilian acquisitions turned out as Casai had hoped, and problems staying afloat led the startup to turn its focus back to its initial market, Mexico. Betterfly is also an example of a startup that bought others to grow its market position and then had to make adjustments. In November 2022, Latin America’s most valuable insurtech acquired, for an undisclosed amount, SeuVale, a Brazilian flexible employee benefits startup. This was the second acquisition of a Brazilian company and the eighth M&A deal since Betterfly’s founding in 2020. Thanks to the M&A, by the close of 2021, Betterfly had grown twenty-fold in a year and a half, according to its CEO, Eduardo della Maggiora. The Chilean company acquired seven Chilean startups, one Brazilian startup, and one Spanish startup with its raised capital rounds. But the accelerated growth had its adverse effects, although its CEO assured that its growth was sustainable. This January, Betterfly laid off 30% of its staff. The reasons, according to its founders, were a change of focus and the global economic crisis. In a letter they posted on social networks, founders Eduardo and Cristobal della Maggiora said that Betterfly “was built for a fast growth model, in which even the hiring of roles, support areas, and infrastructure, both at the corporate level and in each of the seven countries in which we operate, was brought forward.” The adverse environment for startups, with massive layoffs and caution in venture investments for late-stage startups, “made it necessary to conduct a new, more in-depth review of our current structure, detecting, among others, positions that will cease to exist and will not be replaced,” said CEO Eduardo della Maggiora in the letter. Jokr, an online supermarket founded by German Ralf Wenzel that operated in Peru, Colombia, the U.S., Mexico, and Brazil, did not fare well after an acquisition. The startup decided to close all its markets except Brazil, its only profitable market, according to Wenzel. In May 2022, Jokr completed the acquisition of Colombian startup Plaz, which focused on the marketing and distribution of fruits and vegetables through its app. The goal of Jokr, a unicorn valued at US$1.2 billion, was to strengthen its fresh produce home delivery service with this acquisition, not only in Colombia, but strong competition caused it to leave most of its markets. In Mexico, for example, Jokr faced competition from online supermarket Jüsto, whose forte is mainly fresh produce. M&A has become popular among Latin American unicorns. Eighty-three percent have made at least one acquisition since 2018, according to Endeavor and Glisco Partners. With large amounts of capital in record investment years for Latin American startups, they are acquiring others to strengthen themselves, but the market situation is an obstacle. Fernando Eraña, a lawyer specializing in venture capital and M&A at Pérez Correa González law firm in Mexico City, pointed out that in these operations, there is always a financial audit and a legal audit to check that the company is in order, so the cause of the failure of these acquisitions is the context and not the transaction itself. “In the purchase agreement, there are a series of assumptions and guarantees that if they are not met, the sellers indemnify and have liability,” he added. The acceleration of M&A will continue One of the reasons M&A has accelerated is because of high-interest rates, which has caused caution in venture capital investments. “We will continue to see this a lot in the coming months because it is a market issue; there are companies that are not going to be able to raise the next round, and the way to survive over time is to join with someone who does have funding,” says Vincent Speranza, general director of Endeavor Mexico. According to the current context, “there will be companies that merge from a strategic perspective because the product offered by one is complementary to the other, and together the two make more noise,” added Speranza. Normally startups acquire a strategic competitor or another startup to help them access a new market, Eraña confirmed. From his experience in this type of operation, those are mainly the reasons “and not so much because of economic issues in the market or because there is no capital”.