Just what do companies acquire when they acquire another company?

Another day, another corporate acquisition in the technology sector: another former glory in the shape of Monster.com, bought by Dutch human resources giant Randstad for $429 million, or $3.40 a share, a reasonable premium on the $2.50 it’s been trading at over recent months, but far from the $91 that it reached in March 2000, when its market capitalization was close to $8,0000 million.

Since then, the company’s value has fallen steadily: Monster.com was supposed to disrupt the market, but instead became just another competitor, a biggish one, but one that wasn’t going to meet investors’ hopes.

Monster seemed to be one of the most-visited jobs pages in the United States and the world, with more than five thousand employees in six countries and with some 63 million people visiting it each month to look for jobs. But in reality, it was on the way down, with competitors like Indeed.com or CareerBuilder attracting more traffic and with little to excite the investors, despite a few supposedly strategic investments.

Monster.com’s downfall in many ways mirrors that of Yahoo!, another fallen idol that ended up being bought for a fraction of its worth in its heyday. Which prompts the question as to why any company would consider buying these run-down behemoths.

• Talent: this is the case with so-called acqui-hires; buying a company for the team it comes with, usually directors or developers. Often the company itself is of no interest and is allowed to close and the team, now that it is free, is then transferred to new duties. The current expert at this is Facebook, which usually introduces elements from other categories.
• Synergies: the idea is to take control of a company that after being beefed up with the resources it acquires, can move up to a new level of scale. For the founders of the company this is often an opportunity to continue working on a project that motivates them but with more resources, and that can be anything from development talent to an economic blast of oxygen. In some cases this is combined with the previous approach. The recent acquisition of Jet.com by Walmart is a clear case of combining synergies with talent, bearing in mind that Marc Lore, the founder of Jet.com, is not only keeping his job at the helm, but will take on to manage all the online initiatives at Walmart.
• Market share: the buyer wants the users of the services or products of the acquired company, incorporating them into its own, in the hope that it can access the former’s customer base, obtaining benefits from cross-selling or up-selling, as well as increasing its global share of customers and possibly improving the acquired company’s performance through new resources. Verizon’s purchase of Yahoo! or yesterday’s Randstad and Monster, clearly belong in this category.
• Strategic repositioning: thanks to the acquisition, the buyer tries to reposition itself in market it considers interesting but that it lacks know-how about. This is the case of ARM’s purchase of SoftBank, a telecom company that hopes by buying a rising star in the Internet of Things with a low share price — perhaps because investors have heard a lot of talk about IoT but have yet to see much — but with many opportunities to leverage its operations if it has access to more resources, or even to accelerate or control the arrival cycle of the company’s products to the industry. On some occasions, the acquisition is carried out along the lines of pick winners early. Thanks to this operation, SoftBank can now think about playing a major role on a stage that could create opportunities for a telecoms company in the same way that Telefonica did when it invested in France’s Sigfox in February 2015. We could also include in this category Microsoft’s recent purchase of LinkedIn or the sports monitoring apps by sports apparel makers.
• Eliminate the competition: an acquisition can consolidate an industry by removing surplus capacity, as is the case with the recent acquisitions of Uber China by Didi Chuxing or Hailo by MyTaxi, or to simply remove a bothersome competitor that might speed up the popularization of a technology that the company’s finds inconvenient, with any number of examples such as Telefonica’s purchase of Jajah in 2009, which was then left to rot and closed down in 2013.
• Transformation: very occasionally and with great difficulty, this happens when companies are aware of their failings in facing new challenges decide to buy a competitor that they believe has the skills they need or a more modern outlook. These buyouts are notable because although the buyer is bigger, it goes out of its way to woo the team of the company it is buying, hoping to convert them into leaders with the ability to transform the buyer.
• Taxes: for companies making a lot of money from overseas operations one way to avoid repatriating profits and paying tax on them in the country of origin is to buy a business abroad. It isn’t usually the sole reason for the acquisition, but it can certainly sweeten the deal or provide an additional incentive. Companies like Apple or Google have done it on occasion, as have Pfizer and Allergan recently.
• Improving its product or service: the acquirer buys a company so as to extend its customer base, as has been the case with most LinkedIn acquisitions, or in the hope of attracting new customers with a service they will find interesting, as Microsoft did with Minecraft. It’s not as drastic as repositioning or transforming, but it can provide a way into a new, extra market.

The above is a far from exhaustive list, nor one that covers all the angles. It is also true that many operations combine the above reasons. In short, it’s a list put together by somebody who keeps an eye on mergers and acquisitions and tries to analyze them. If anybody out there feels like adding to it, go ahead. I’d be happy to edit it. The more the merrier!

(En español, aquí)