Submitted by by Britton Langdon and Scott Hoekman
In 2022, Cedar Rapids-based construction technology and software startup Msuite announced its sale to the world’s largest tool company, Stanley Black & Decker. The following is a great case study of how Msuite’s relationships and strategic development led to an excellent outcome.
Preparing an exit strategy
For many startup founders, one of the ultimate goals is a successful acquisition of their businesses. While IPOs are often portrayed as the peak outcome for startups, far more companies see exits via a sale process than by going public. Many entrepreneurs are inspired to found startups to make a formidable impact, and an acquisition by a larger brand can provide startups the opportunity to expand their reach beyond their current markets. Thus, something we have learned as both startup founders and investors is the importance of a clear exit strategy in your business plan.
A foundational investment
Msuite, founded in 2015, completed its series seed round in 2020, and this was led by Des Moines-based investment firm Next Level Ventures. In addition, a co-investor in the round was Stanley Black and Decker’s corporate venture arm, Stanley Ventures. This investment allowed Msuite to continue to revolutionize the construction industry with groundbreaking data-sharing and communication technology, developing new solutions, and growing the team.
Msuite’s strategic opportunity
Because of Msuite’s upward trajectory, Stanley Black and Decker determined that Msuite’s software had significant strategic importance in the construction space. It approached Msuite with an opportunity to not only partner in a more integrated fashion, but also make a complete purchase of the business. Combined, Stanley Black and Decker and Msuite would serve a customer base of over 200 companies across North America with expanded capabilities, broadened talent depth and technology to reinvent the industry.
In today’s economic uncertainty, mergers and acquisitions are even more challenging. As the saying goes, good companies get bought, not sold, and an intentional, effective acquisition takes thoughtful planning and preparation.
The experiences of Msuite in this recent acquisition have brought to light the key drivers to a successful exit. As similar Midwest-based startups consider their options and next steps, it is crucial to consider the following:
Track record and growth. It should come as no surprise that a strong track record is one of the most defining motivations for an acquisition. Particularly during economic uncertainty, larger companies are looking for successful businesses that will complement and grow their existing presence. A startup that has distinctly formed key metrics, provided clean and clear financials, and recorded successful performance will demonstrate a flourishing business. And a thriving startup will also have a clear growth plan, ensuring ongoing potential for further evolution and profitability.
Strategic market and customer base. One of the most defining benefits for a startup in an acquisition is the opportunity to reach a bigger market. This is true for both parties, as a good acquisition will also bring a new piece of market share to the buyer as well. As growth is a critical component to a good business, and a top priority for founders, access to a new market and new customers is an excellent way to grow.
Team and organizational culture. You have seen this before – a company is as strong as its team. A team with a track record of efficacy and accomplishment can be expected to continue that pattern after an acquisition. Outside of the financial analysis, strategic planning and due diligence that go into an acquisition, the worth of a strong and capable team can be overlooked. One vital component of the Msuite acquisition was the continuation of Msuite’s CEO as the leader of the team following the deal as well as maintaining the great technical talent.
Midwest location. Midwest startups like Msuite should emphasize their cultural and organizational roots. Being positioned in the Midwest offers some distinct benefits to startups and the businesses acquiring them, including relatively lower costs, a large consumer market and a centralized location in the U.S. In fact, more than 100 Fortune 500 companies are located in the Midwest region, thanks to impressive access to resources and a skilled workforce.
Today’s business environment is constantly evolving as a result of global challenges, market turmoil and rapidly advancing technology. As your startup approaches its next growth stage, it is critical to consider planning for an exit.
Britton Langdon is the co-founder and CEO of the Cedar Rapids construction technology company Msuite. Scott Hoekman is a partner of Next Level Ventures, a prior investor in Msuite, and was a board member of Msuite.