On October 26th, Tesla CEO and eccentric billionaire – Elon Musk – concluded his near eight-month bid for Twitter with the successful and highly publicised acquisition of the social media platform. The coarse takeover saw the Twitter board dissolved, making Musk the sole owner and director of Twitter, taking the company from publicly traded status to privately owned. M&A expert and tech business advisor, Claire Trachet, comments on the various implications this has on the broader M&A market, as founders and startups globally witness the forceful intervention a takeover can have on the modus operandi of an organisation.
Musk swiftly tore through Twitter’s power structures – being the sole owner – with an executive order to lay off roughly 50% of Twitters staff. Twitter had been carrying a heavy operating model resulting in nearly $4 million worth of losses daily – leaning down the company in the current economic climate was crucial for survival and growth. Serving as testament are similar decisions from organisations like Klarna, Stripe and Meta, which experienced drastic valuation drops – ranging from 28% to 85%. In Meta’s case, the heavy operating model resulted in a drop equivalent to $700 billion and resulted in 11,000 layoffs announced last week.
Seemingly, slimming down was not something the old Twitter was willing to do to ensure the company’s position as a leading social media platform – something which is happening across the board with tech giants Amazon and Salesforce following suit. Twitter’s Founder, Jack Dorsey, publicly stated “I own the responsibility for why everyone is in this situation: I grew the company size too quickly. I apologize for that.” This serves as a critical lesson for startups scaling in today’s environment, numbers speak louder than narrative – generating revenue is the only way to continue scaling and should remain the focus, even if it means severing emotional ties to the business. Conversely, this can result in a full shifting of the vision and culture, referring to “Hardcore” Twitter and its criticised revenue generating proposals.
However, even if Musk’s cutbacks were necessary, they were certainly unpopular considering nearly 520 of Twitter’s top talents flocked to rival platforms like Meta and Google in the 3 months running up to the acquisition – another symptom of a hostile takeover. The implications of this on the company’s bottom line are yet to be seen since the company is no longer listed publicly. Gauging the market’s reaction towards Elon’s announcements becomes increasingly harder after a take-private, however, the 900k users which deactivated their accounts since the takeover doesn’t bode well for the platform. It will take many years of uncertainty and fine-tuning to understand the true effects of the M&A on the organisation.
Claire Trachet highlights the main lessons from the Twitter takeover for startups and outlines the steps that could’ve been taken to ensure a smooth and successful M&A:
Momentum is key, avoid hold-ups at all costs:
“I always stress to my clients the importance of being deal ready before heading into any potential transaction. The buyer has shown an interest in your firm at a particular moment in time, but a simple change in external market conditions could lead to them getting cold feet and pulling out – certainly the case for Elon Musk and twitter. In other cases, having all the necessary preparations before negotiations have started, to ensure the deal gets over the line quickly and smoothly.
“This has never been more important than in the current deals market where the environment can dramatically change over the course of just a few weeks.”
Fit is important, enlist the help of a corporate matchmaker:
“Another key consideration is the alignment in terms of culture between the business and prospective acquirer. So, it’s of vital importance to get a good understanding of how the other party operates prior to getting deep into negotiations, otherwise problems can occur down the line – the Twitter situation is a perfect example of this. Sharing the same values and vision really helps in fostering a smooth negotiation process – all it can take at times is a bad feeling for a deal to fall through. This is where it is again invaluable having someone that has been through these processes before, and can source the ideal buyer for your company.”
Have your finances in order, finding a buyer might take time:
“Finally, startups should focus on extending the runway, so to speak – be diligent with the business’s working capital by optimising cash flow, this is as true for social media giants like Twitter as it is for startups undergoing their Series A or Series B. Applying this mentality to the whole of the organisation is going to be key in the next year, whether you’re entering a fundraising round or considering an exit, ideally startups should be doing both – a lean operating model shows potential buyers that you know how to be savvy with capital, which is becoming increasingly important in today’s climate.”