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Startups trim structure, use stocks as bargaining chip

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Mergers and acquisitions involving stock swap are expected to be increasingly frequent in negotiations involving startups. This is an alternative for companies seeking to grow in the face of closed doors from investors for new rounds of fundraising.According to specialists consulted by Valor, many startups are cutting costs and laying off to try and preserve cash as much as possible.Loft, a real estate startup, unveiled Tuesday the dismissal of 384 people, or 12% of its 3,200 headcount. Considering the 159 dismissed in April, the company has cut 543 employees so far.The April layoffs were made in the mortgage lending field following the acquisition of mortgage startup CrediHome in August involving a stock swap. Loft have not unveiled the value of the deal.Stocks also entered as part of the payment of $229 million made by the Ebanx group for the purchase of fintech Remessa Online, last December. In June, Ebanx also made a restructuring and cut 340 people, or 20% of its 1,700 employees.To grow without exposing market capitalization to a lower round of fundraising than before, stocks are a good resource at the negotiating table in both acquisitions of complementary companies and mergers of startups in the same segment, said Patrick O'Grady, founding partner of investment holding company Vectis Partners and fintech Vtech."Because of the market correction, when you put two companies in the same industry together using the stock swap as a price parameter, they both maintain value because there was no cash inflow," he said. "That creates a larger company, which can eventually reduce duplicity costs and gain some steam until the market improves to do a higher-value round down the road."The alternative is not exclusive to negotiations between startups. Loyalty program company Dotz used a stock swap as part of the purchase of the credit simulation startup Noverde. In April, Dotz acquired 49.96% of Noverde’s capital for R$35.7 million - part in stocks. The purchase of 100% of the capital is to be voted on at a shareholders’ meeting, with no date yet set.This was Dotz’s first acquisition since its IPO in May last year, and the company’s debut in the use of stocks to complement the cash payment in an acquisition, said Otavio Araújo, Dotz’s chief financial officer. "Besides reducing cash exposure, exchanging shares with the acquired...

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