Throughout 2009 we’ve been noticing a fairly surprising trend rate of what we would call a ‘Shopping Spree’ by the Big Boys. Early start-ups and established companies have been acquired on average almost every 3 months throughout the year.
Such as Cisco acquiring Tandberg for $3.0 billion and Starent Networks for $2.6 billion. Facebook purchasing FriendFeed for $47.5 million and Amazon acquiring Zappos for $1.2 billion.
So why are these Big Boys buying companies like there’s no tomorrow and how do you get acquired if you wanted to? We managed to speak to a couple of investors and venture capitalists from Silicon Valley, China, Singapore and Israel to tap their minds on mergers & acquisitions (M&A)
If you’ve been thinking that listing your company is the best and fastest way to cash out, you might want to think again. Based on some interesting statistics, most companies exit and cash out though the process of a merger & acquisition as opposed to going for IPO.
No doubt there are companies that will achieve financial exits through IPO’s but the amount of companies that exited through M&A’s are tremendous. The significance of the amount cashed out is also higher on average.
And so we asked one of the VC’s, if this was the case, how do we plan for acquisitions to happen in the future?
His answer was, “Most of our companies that got acquired didn’t plan to get acquired per say. But because they we’re providing so much value that they gained interest. If you do not create value you would die anyway because you’re not able to sustain.”
But if being acquired contributes to a large statistic and profits of exiting, the fact that companies are able to strategize to go for IPO, how does one strategize from day one for your company to be acquired?
As we go deeper into the conversation, a few valuable insights were shared on how to subtly strategize your acquisition.
First, create a product or service that would in a certain way ‘hurt’ them. When we say hurt it actually means that will slightly threaten the competitors business in terms of market share.
For example, recently AppJet which produced EtherPad was acquired by Google. EtherPad is a real-time collaboration application similar to Google Docs. It was said that EtherPad was a slight threat to Google Docs, but that being said is not the sole reason to be purchased.
Next is by building a valuable product or service that will threaten the existing companies, and with that tremendous value you’re able to gather a large consumer base in which translates into market share. When this happens it might be a dent on the revenue portfolio of the Big Boys.
When that happens it would be much easier for the Big Boys to buy your existing business along with the entire community and consumers around it, instead of recreating the wheel. By doing this it immediately gives direct market dominance in the particular field which they are in or are planning to enter.
A very good example for this is Mint that was acquired by Intuit for $170 million and Playfish that was purchased by Electronic Arts.
Another part of the strategy is to build a platform or product that provides value and is parallel with their future directions. By being able to integrate and compliment existing business models and directions of these Big Boys. For instance Google bought AdMob for $750,000 because it was a direct extension and compliment to their business model and future directions of Google wanting to penetrate the mobile advertising market space.
The reason Google bought AppJet for EtherPad was also because they believed that the real-time technology team is able to further enhance and compliment the development of Google Wave.
Finally, another tip is to start initiating partnerships or collaboration early with the company or organizations that you want to be acquired by. Form an initial and a valuable working relationship with the company. For instance if you want to be acquired by Apple, try to do small collaborations with them so when the time comes they wouldn’t be foreign and at least have worked with your company before hand. This will ease the integration and transition amongst both companies.
All these elements have to be in confluence and goes hand-in-hand with each other in order to strategize for this particular tricky yet uncertain manoeuvre to get acquired. And if all the pieces come together, a dash of luck is all you need as the final yet essential element. So send your wishes to Santa and your wish might just come true.
Merry White Christmas!
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